1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
         ------------------------------------------------------------------------------------------------

                                    FORM S-4
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933
              -----------------------------------------------------------------------------

                            FIRST FINANCIAL BANCORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                           -------------------------(Exact name of registrant as specified in its charter)
                ------------------------------------------------


                                                                                  
             OHIOOhio                                    6711                                   31-1042001     
(STATE OR OTHER JURISDICTION OF      (PRIMARY STANDARD INDUSTRIAL(State or other jurisdiction of          (Primary Standard Industrial                      (IRS EMPLOYER
INCORPORATION OR ORGANIZATION)        CLASSIFICATION CODE NUMBER)     IDENTIFICATION NO.Employer   
incorporation or organization)            Classification Code Number)                   Identification No.)

------------------------- THIRD AND HIGH STREETS HAMILTON, OHIO-------------------------------------------------- Third and High Streets Hamilton, Ohio 45011 (513) 867-4700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------------------------- MICHAEL(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ----------------------------------------------------------- Michael R. O'DELL COMPTROLLER FIRST FINANCIAL BANCORP. THIRD AND HIGH STREETS HAMILTON, OHIOO'Dell Senior Vice President, Chief Financial Officer and Secretary First Financial Bancorp. Third and High Streets Hamilton, Ohio 45011 (513) 867-4700 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ----------------------------------(Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------------------------------------------------------- Copy to: NEIL GANULIN FROST & JACOBS 2500 PNC CENTER 201 EAST FIFTH STREET CINCINNATI, OHIO 45202 (513) 651-6800 ------------------------------------------------------------------------------------------------------------ Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. ------------------------------------------------------------------------------------------------------------ If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: / /[ ]
CALCULATION OF REGISTRATION FEE
========================================================================================= PROPOSED PROPOSED TITLE OF EACH MAXIMUM MAXIMUM CLASS OF OFFERING AGGREGATE AMOUNT OF SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION REGISTERED REGISTERED UNIT (1) PRICE (1) FEE - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Common Stock, par value $8.00 per share 400,000 $34.50 $13,800,000 $4,759.00398,000 $33.875 $13,482,250 $4,650 ========================================================================================= (1) ESTIMATED IN ACCORDANCE WITH RULE 457(f)(1) SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. =========================================================================================
(1) ESTIMATED IN ACCORDANCE WITH RULE 457(f)(1) SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 FIRST FINANCIAL BANCORP. CROSS REFERENCE SHEET
FORM S-4 ITEM PROXY STATEMENT CAPTION ------------- ----------------------- 1. Forepart of Registration Statement Facing Page of Registration Statement; Cross Reference Sheet; StatementSheet and Outside Front Cover Page of Outside Front Cover Page of Proxy Statement-Prospectus; Page of Prospectus IntroductionIntroduction; 2. Inside Front and Outside Back Available Information; Documents Incorporated by Reference; Cover Pages of Prospectus Table of Contents 3. Risk Factors, Ratio of Earnings to Introduction; Summary; Comparative Market and Dividend to Fixed Charges and Other Information; Principal Shareholders and Ownership By Management Information 4. Terms of the Transaction Summary; Description of the Merger; Comparison of Common Stock and Shareholders' Rights 5. Pro Forma Financial Information Pro Forma Consolidated Balance Sheet; Pro Forma Condensed Consolidated Statements of Earnings; Pro Forma Consolidated Selected Financial Data 6. Material Contacts with the Company Summary; Description of the Merger Company Being Acquired 7. Additional Information Required Not Applicable for Reoffering by Persons and Parties Deemed to Be Underwriters 8. Interests of Named Experts and Not Applicable Counsel 9. Disclosure of Commission Position Not Applicable on Indemnification for Securities Act Liabilities 10. Information with Respect to S-3 Not Applicable Registrants 11. Incorporation of Certain Not Applicable Information by Reference 12. Information with Respect to S-2 or Documents Incorporated By Reference; Information About Bancorp; orFirst S-3 Registrants Financial; Comparative Market And Dividend Information 13. Incorporation of Certain Documents Incorporated By Reference Information by Reference 14. Information with Respect to Not Applicable Registrants Other Than S-3 or S-2 Registrants 15. Information with Respect to S-3 Not Applicable Companies 16. Information with Respect to S-2 or Not Applicable or S-3 Companies 17. Information with Respect to Information About the Business of F&M; F&M's ConsolidatedHastings Financial; Hastings Financial's Companies Other than Consolidated Financial Statements; Management's Discussion and Analysis of S-3 or S-2 Companies Financial Condition and Results of Operations of F&M;Hastings Financial; Comparative Market and Dividend Information; Comparison of Common Stock and Shareholders' Rights 18. Information if Proxies, Consents Notice of Special Meeting of Shareholders; Documents or Authorizations are to be Incorporated By Reference; Introduction; Summary; Description of Solicited of the Merger; Principal Shareholders and Ownership By Management; Information About the Business of F&MHastings Financial 19. Information if Proxies, Consents Not Applicable or Authorizations are not to be Solicited or in an Exchange Offer
3 ____________,November __, 1996 Dear Fellow Shareholder: You are cordially invited to attend the Special Meeting of Shareholders (the "Special Meeting") of F & M BancorpHastings Financial Corporation ("F&M"Hastings Financial") to be held on _________December __, 1996 at 3:00 p.m.____ _.m. local time. At the Special Meeting, you will be asked to consider and vote on certain matters, including a proposal to approve the Plan and Agreement of Merger dated September 11, 1995July 2, 1996 (the "Merger Agreement") between First Financial Bancorp. ("Bancorp"First Financial") and F&M,Hastings Financial, pursuant to which F&MHastings Financial will merge with and into BancorpFirst Financial (the "Merger"). Upon consummation of the Merger, the aggregate number of BancorpFirst Financial shares to which the holders of F&MHastings Financial shares shall be entitled shall be determined by dividing $12,500,000$10,000,000 by the per share value of BancorpFirst Financial shares, which figure will be determined and adjusted in accordance with and as specified in the Merger Agreement, as summarized in the accompanying Proxy Statement-Prospectus. The Merger Agreement has been unanimously approved by your Board of Directors and is recommended by the Board to you for approval. The enclosed Notice of Special Meeting and Proxy Statement-Prospectus include a description of the proposed Merger and provide specific information concerning the transaction. Please read these materials and consider carefully the information set forth in them. Whether or not you plan to attend the Special Meeting, you are urged to complete, sign, and promptly return the enclosed proxy form. If you attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy. The Merger is a significant step for F&MHastings Financial and your vote on this matter is of great importance. On behalfON BEHALF OF THE BOARD OF DIRECTORS, I RECOMMEND THAT YOU VOTE FOR APPROVAL OF THE MERGER BY MARKING THE ENCLOSED PROXY FORM "FOR" IN ITEM ONE. Sincerely, Larry J. Kornstadt Chairman of the Board, of Directors, I recommend that you vote for approval of the Merger by marking the enclosed proxy form "FOR" in item one. Sincerely, William J. Gordon President and Chief Executive Officer 4 F & M BANCORP 729 MAINHASTINGS FINANCIAL CORPORATION 241 WEST STATE STREET ROCHESTER, INDIANA 46975-0567HASTINGS, MICHIGAN 49058 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ______DECEMBER __, 1996 Notice is hereby given that a Special Meeting of Shareholders (the "Special Meeting") of F & M BancorpHastings Financial Corporation ("F&M"Hastings Financial") will be held at the Main Office of Farmers & MerchantsNational Bank 729 Main Street, Rochester, Indiana 46975-0567,of Hastings on _______December __, 1996 at 3:00 p.m.____ __.m., local time, to consider and act upon the following matters, each of which is more completely set forth in the accompanying Proxy Statement-Prospectus: 1. The approval of the Plan and Agreement of Merger dated September 11, 1995July 2, 1996 by and between First Financial Bancorp. ("Bancorp"First Financial") and F&M,Hastings Financial, a copy of which is attached hereto as Appendix A (the "Merger Agreement"), and the transactions contemplated thereby, including the merger of F&MHastings Financial with and into BancorpFirst Financial (the "Merger"), pursuant to which the following will occur on the effective date of the Merger (the "Effective Time"): (a) Each of the outstanding shares of F&MHastings Financial will be canceled and extinguished in consideration and exchange for a number of shares of BancorpFirst Financial specified by the Merger Agreement; (b) F&MHastings Financial will merge with and into BancorpFirst Financial at the Effective Time and BancorpFirst Financial will be the continuing, surviving and resulting corporation in the Merger; and (c) Farmers & MerchantsNational Bank ("Farmers & Merchants"), F&M'sof Hastings, Hastings Financial's only subsidiary, will merge with and into Indiana Lawrence Bank ("Indiana Lawrence"),become a wholly owned subsidiary of Bancorp, and Indiana Lawrence will be the continuing, surviving and resulting corporation in the Merger.First Financial. 2. A proposal to permit the Special Meeting to be adjourned or postponed, in the discretion of the proxies, which adjournment or postponement could be used for the purpose, among others, of allowing time for the solicitation of additional votes to approve the Merger Agreement. 3. A proposal to divide the members of the Board of Directors of F&M into three groups, as nearly equal in number as possible, with the term of the first group to expire at the 1996 annual meeting of F&M shareholders, the term of the second group to expire at the 1997 annual meeting and the term of the third group to expire at the 1998 annual meeting; and to ratify all actions of the Board of Directors of F&M taken prior to the division of its members into three groups. 4. The transaction of such other business as may properly come before the Special Meeting or any adjournment thereof. Only shareholders of record at the close of business on ______ __, 1995,___________, 1996, are entitled to receive notice of and to vote at the Special Meeting or any adjournment thereof. Shareholders of F&MHastings Financial entitled to vote at the Special Meeting may dissent from the Merger and obtain payment of the value of their F&MHastings Financial Common Stock in the manner provided under Indiana Code Chapter 23-1-44,Michigan Business Corporations Act Sections 450.1761-450.1774, a copy of which is attached hereto as Appendix C. Whether or not you plan to attend the Special Meeting, please complete, date, and sign the enclosed proxy form and return it at once in the stamped return envelope. The submission of such Proxy does not affect your right to vote in person in the event that you attend the Special Meeting. By order of the Board of Directors ----------------------------------- George R. Hoover,David C. Wren, Assistant Secretary Rochester, Indiana ______Hastings, Michigan November __, 1996 5 F & M BANCORPHASTINGS FINANCIAL CORPORATION Proxy Statement For Special Meeting of Shareholders To be Held _______December __, 1996 ------------------------- FIRST FINANCIAL BANCORP. Prospectus Up to 400,000398,000 Shares of Common Stock, Par Value $8.00 Per Share This Proxy Statement-Prospectus is being furnished to the shareholders of F & M BancorpHastings Financial Corporation ("F&M"Hastings Financial") in connection with the solicitation by the Board of Directors of F&MHastings Financial of proxies for use at the Special Meeting of Shareholders ("Special Meeting") to be held _______December __, 1996, at 3:00 p.m.____ _.m., local time, at the Main Office of Farmers & MerchantsNational Bank 729 Mainof Hastings, 241 West State Street, Rochester, Indiana 46975-0567,Hastings, Michigan 49058, and at any adjournments thereof. This Proxy Statement-Prospectus and the accompanying form of Proxy are being mailed to F&M'sHastings Financial's shareholders on or about _______November __, 1995.1996. This Proxy Statement-Prospectus is also the prospectus of First Financial Bancorp., an Ohio corporation ("Bancorp"First Financial"), in respect of up to 400,000398,000 shares of Bancorp'sFirst Financial's Common Stock, par value $8.00 per share (the "Bancorp"First Financial Common Stock"), to be issued in connection with the merger of F&MHastings Financial with and into BancorpFirst Financial (the "Merger"). BancorpFirst Financial will be the surviving entity. Farmers & Merchantsentity and National Bank of Hastings, the bank subsidiary wholly owned by F&M,Hastings Financial, will then merge with and into Indiana Lawrence Bank,become a wholly owned subsidiary of Bancorp (the "Subsidiary Merger"), and Indiana Lawrence Bank will be the continuing, surviving and resulting corporation in the Subsidiary Merger.First Financial. As a result of the Merger, the aggregate consideration to be received by all F&MHastings Financial shareholders is fixed in the Merger Agreement at $12,500,000,$10,000,000 (the "Merger Price"), payable in shares of BancorpFirst Financial Common Stock. The totalIf the Effective Time is after January 1, 1997, the Merger Price will be fixed at $10,000,000 plus a sum equal to National Bank of Hastings' earnings after January 1, 1997, excluding transaction-related costs, payable in shares of First Financial Common Stock. Each Hastings Financial shareholder who does not dissent to the Merger will be entitled to receive from First Financial in exchange for each share of Hastings Financial Common stock, par value $1.00 per share (the "Hastings Financial Common Stock"), surrendered in the Merger a number of shares of Bancorp Common StockFirst Financial equal to be issued as a resultthe quotient (the "Exchange Ratio") of the Merger (the "Deliverable Shares")Price divided by the average price of First Financial shares, which figure will be determined and adjusted in accordance with and as specified in the Merger Agreement, as summarized in "DESCRIPTION OF THE MERGER--Exchange Ratio." Each shareholder of F&M who does not dissent toand further divided by the Merger will be entitled to receive atotal number of shares of BancorpHastings Financial Common Stock equal to the Deliverable Shares multiplied by a fraction, the numerator of which is the number of F&M Shares held by that shareholder immediately prior to the Effective Time and the denominator of which is the number of F&M Shares outstanding immediately prior to the Effective Time. The Merger will constitute a "reorganization" for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, as a general rule, no gain or loss should be recognized by shareholders of F&M to the extent such shareholders exchange their securities solely for Bancorp Common Stock in the Merger. See "DESCRIPTION OF THE MERGER-Federal Income Tax Consequences of the Merger."INTRODUCTION--General." The closing sales price of BancorpFirst Financial Common Stock on _______November __, 1996, the last trading date before the printing of the Proxy Statement-Prospectus, was $__.__ per share.$_____. The Merger may be terminated by BancorpFirst Financial if the average price, of Bancorp Common Stock, as defined in the Merger Agreement, (the "Average Price")of First Financial Common Stock falls below $28.48$27.625 per share or by F&MHastings Financial if the Average Price of Bancorp Common Stockaverage price exceeds $38.53$37.375 per share. No person is authorized to give any information or to make any representation not contained in this Proxy Statement-Prospectus and, if given or made, such information or representation should not be relied upon as having been authorized. This Proxy Statement-Prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this Proxy Statement-Prospectus, or the solicitation of a proxy, in any jurisdiction in which, or from any person to whom, it is unlawful to make such offer, or solicitation of an offer, or proxy solicitation. Neither the delivery of this Proxy Statement-Prospectus nor any distribution of the securities offered pursuant to this Proxy Statement-Prospectus shall, under any circumstances, create an implication that there has been no change in the information set forth herein or in the affairs of F&MHastings Financial or BancorpFirst Financial since the date of the Proxy Statement-Prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT ENTITY. ------------------------- The date of this Proxy Statement-Prospectus is _______November __, 1996. 6 AVAILABLE INFORMATION Bancorp--------------------- First Financial has filed a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with the Securities and Exchange Commission (the "SEC") with respect to the BancorpFirst Financial Common Stock to be issued in connection with the Merger. As permitted by the rules and regulations of the SEC, this Proxy Statement-Prospectus omits certain information contained in the Registration Statement. Copies of that information may be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the prescribed fees. In addition, BancorpFirst Financial is subject to the informational, reporting and proxy statement requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the SEC. Copies of such reports, proxy statements and other information can be obtained, at prescribed rates, from the SEC by addressing written requests for such copies to the Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy statements and other information can be inspected at the public reference facilities referred to above and at the regional offices of the SEC as follows: New York Regional Office Chicago Regional Office 7 World Trade Center Northwestern Atrium Center Suite 1300 500 West Madison Street New York, New York 10048 Suite 1400 Chicago, Illinois 60661 BancorpFirst Financial Common Stock is traded in the over-the-counter market and quoted on the Nasdaq National Market System. Documents filed by BancorpFirst Financial with the SEC can also be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. F&MHastings Financial is not subject to the requirements of the Exchange Act. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM MICHAEL R. O'DELL, COMPTROLLER,SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY, FIRST FINANCIAL BANCORP., THIRD AND HIGH STREETS, HAMILTON, OHIO 45011. TELEPHONE REQUESTS MAY BE DIRECTED TO BANCORPFIRST FINANCIAL AT (513) 867-4700. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY ________DECEMBER __, 199_.1996 [5 DAYS BEFORE MEETING DATE]. 7 The following documents previously filed with the SEC by BancorpFirst Financial are hereby incorporated by reference herein: 1. Bancorp'sFirst Financial's Annual Report on Form 10-K for the fiscal year ended December 31, 19941995 (the "Bancorp"First Financial Form 10-K"10- K"); and 2. Bancorp'sFirst Financial's Quarterly Report on Form 10-Q for the quarters ended March 31 and June 30, and September 30, 1995.1996. 3. The following information set forth in the 19941995 Annual Report of BancorpFirst Financial to its shareholders: (a) The information in the table set forth on page 4248 under the caption "Quarterly Financial And Common Stock Data." (b) The information in the table set forth on page 1722 under the caption "Table 1 - Financial Summary." (c) The information set forth on pages 1621 through 2430 under the caption "Management's Discussion And Analysis Of Financial Condition And Results Of Operations." Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Proxy Statement-Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Proxy Statement-Prospectus. This Proxy Statement-Prospectus is accompanied by Bancorp's 1994First Financial's 1995 Annual Report to Shareholders and Bancorp'sFirst Financial's Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 1995.1996. Following the Merger, BancorpFirst Financial will continue to be subject to the informational, reporting and proxy statement requirements of the Exchange Act. 8 TABLE OF CONTENTS
INTRODUCTION INTRODUCTION General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .General............................................................................................... 3 Record Date, Solicitation And Revocability Of Proxy . . . . . . . . . . . . . . . . 4Proxy................................................... 5 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Required......................................................................................... 5 Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Outstanding.................................................................................... 6 Restrictions On Resale Of First Financial Common Stock................................................ 6 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Shareholder Proposals To Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . .Matters......................................................................................... 7 SUMMARY Terms Of The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .Agreement......................................................................... 8 Reasons For The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Merger................................................................................ 8 Approval Of Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Agreement.......................................................................... 8 Other Possible Acquisition By First Financial......................................................... 12 Summary Of Selected Unaudited Financial Data And Per Share Data . . . . . . . . . . 12Data........................................ 13 Selected Unaudited Consolidated Financial Data And Per Share Data . . . . . . . . . 13Data...................................... 14 Notes To Selected Unaudited Consolidated Financial Data And Per Share Data . . . . 15............................ 16 DESCRIPTION OF THE MERGER Background And Reasons For The Merger . . . . . . . . . . . . . . . . . . . . . . . 17Merger.................................................................. 18 Opinion Of Financial Advisor To F&M . . . . . . . . . . . . . . . . . . . . . . . .Hastings Financial..................................................... 19 Structure Of The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Deliverable Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23............................................................................... 22 Surrender Of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 24....................................................................... 22 Fractional Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.................................................................................. 23 Effective Time Of The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Merger........................................................................... 23 Conditions To Consummation Of The Merger . . . . . . . . . . . . . . . . . . . . . . 25Merger............................................................... 23 Termination Of The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26............................................................................. 25 Management Following The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 27Merger........................................................................ 25 Interest Of Certain Persons In The Merger . . . . . . . . . . . . . . . . . . . . . 27 Shareholders' Rights Of Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . 29Merger.............................................................. 26 Dissenters' Rights..................................................................................... 28 Federal Income Tax Consequences Of The Merger . . . . . . . . . . . . . . . . . . .......................................................... 31 Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Treatment................................................................................... 32 Regulatory Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............................................................................. 33 Pro Forma Unaudited Financial Information . . . . . . . . . . . . . . . . . . . . . 34Information.............................................................. 33 PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . .SHEET.................................................................. 35 PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS . . . . . . . . . . . . . . . . . . .EARNINGS......................................................... 36 NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . 41STATEMENTS.............................................. 39 INFORMATION ABOUT BANCORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43FIRST FINANCIAL............................................................................... 41 INFORMATION ABOUT THE BUSINESS OF F&M General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44HASTINGS FINANCIAL General................................................................................................ 42 Competition............................................................................................ 42 Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45............................................................................................ 43 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45............................................................................................ 43 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Proceedings...................................................................................... 43 Certain Transactions With Hastings Financial........................................................... 43 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Data................................................................................ 44 Analysis Of Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . 47Income........................................................................ 45 Interest Income And Expense Rate/Volume Analysis . . . . . . . . . . . . . . . . . . 48Analysis....................................................... 46 Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Securities.................................................................................. 46 Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Portfolio......................................................................................... 47 Deposits............................................................................................... 50 Return On Equity And Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 INFORMATION ABOUT THE MANAGEMENT OF F&M F&M's Board Of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Board Meetings And Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Executive Officers Of F&M . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Certain Transactions With F&M . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 F & M Bancorp--MANAGEMENT'SAssets............................................................................ 50 HASTINGS FINANCIAL CORPORATION--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR YEARS ENDED APRIL 30,DECEMBER 31, 1995, 1994 AND 1993 . . . . . . . . . . . . . . . . . 581993.................................................. 51
1 9 TABLE OF CONTENTS, CONTINUED F&M
HASTINGS FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS Report Of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2Auditors........................................................................ F-3 Consolidated Balance Sheets - April 30,December 31, 1995 And 1994 . . . . . . . . . . . . . . . F-31994...............................................F-4 Consolidated Statements Of Income - Years Ended April 30,December 31, 1995, 1994 And 1993 . . . . . . . . . . . . . . . . . . . . F-41993.........................................................F-5 Consolidated Statements Of Changes In Shareholders' Equity - Years Ended April 30,December 31, 1995, 1994 And 1993 . . . . . . . . . . . . . . . . . . . . F-51993.........................................................F-6 Consolidated Statements Of Cash Flows - Years Ended April 30,December 31, 1995, 1994 And 1993 . . . . . . . . . . . . . . . . . . . . F-61993.........................................................F-7 Notes To Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . F-7 F & M Bancorp--MANAGEMENT'SStatements.............................................................F-9 HASTINGS FINANCIAL CORPORATION--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED OCTOBER 31, 1995JUNE 30, 1996 AND 1994 . . . . . . . . . . . . . . 64 F&M1995................................................... 57 HASTINGS FINANCIAL CORPORATION AND SUBSIDIARY UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheet - October 31, 1995 . . . . . . . . . . . . . . . . . . . 69June 30, 1996............................................................. 60 Consolidated Statements Of Income - Six Months Ended October 31, 1995June 30, 1996 And 1994 . . . . . . . . . . . . . . . . . . . . 701995.............................................................. 61 Consolidated Statements Of Changes In Shareholders' Equity - Six Months Ended October 31, 1995 And 1994 . . . . . . . . . . . . . . . . . . . . 71June 30, 1996....................................................................... 62 Consolidated Statements Of Cash Flows - Six Months Ended October 31, 1995June 30, 1996 And 1994 . . . . . . . . . . . . . . . . . . . . 721995.............................................................. 63 Notes To Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 73Statements............................................................. 64 PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 76MANAGEMENT.............................................................. 66 COMPARATIVE MARKET AND DIVIDEND INFORMATION Nature of Trading Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78Market............................................................................... 67 Dividends.............................................................................................. 68 COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS Authorized But Unissued Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 79Shares......................................................................... 70 Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79Rights........................................................................................ 70 Interested Shareholders................................................................................ 71 Continuing Directors................................................................................... 72 Directors.............................................................................................. 73 Quorum For Shareholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 80Meetings...................................................................... 74 Meeting Participation By Use of Communication Equipment................................................ 74 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Rights.......................................................................................... 74 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Meetings....................................................................................... 74 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Rights...................................................................................... 75 Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Rights..................................................................................... 75 Redemption And Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Assessment.............................................................................. 75 Amendments To Articles And Code Of Regulations/By-Laws . . . . . . . . . . . . . . . 81 Seventy-Five Percent (75%) Affirmative Shareholder Vote Required . . . . . . . . . . 81 Restrictions On Resale Of Bancorp Common Stock . . . . . . . . . . . . . . . . . . . 81 BancorpBy-Laws................................................. 76 First Financial Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 82Plan................................................................ 76 ADJOURNMENT OF THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84MEETING.............................................................................. 77 EXPERTS......................................................................................................... 78 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84MATTERS................................................................................................... 78 APPENDICES Plan and Agreement of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . AppendixMerger....................................................................Appendix A Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AppendixOpinion................................................................................Appendix B Indiana Code Chapter 23-1-44.Michigan Business Corporations Act Section 450.1762. Dissenters' Rights . . . . . . . . . . . . . . . . . AppendixRights........................Appendix C
2 10 INTRODUCTION General - ------- This Proxy Statement-Prospectus and the accompanying form of proxy are being furnished to the shareholders of F & M BancorpHastings Financial Corporation ("F&M"Hastings Financial") in connection with the solicitation of proxies by the Board of Directors of F&MHastings Financial for use at the Special Meeting of Shareholders ("Special Meeting") to be held on ______December __, 1996, at 3:00 p.m.____ _.m. local time. At the Special Meeting, F&MHastings Financial shareholders will be asked to approve the Plan and Agreement of Merger dated September 11, 1995July 2, 1996 by and between F&MHastings Financial and First Financial Bancorp. ("Bancorp"First Financial"), a copy of which is attached hereto as Appendix A (the "Merger Agreement"), and the transactions contemplated thereby. If the Merger Agreement is approved by the shareholders of F&M at the Special Meeting by at least a 75% majority vote of the outstanding F&MHastings Financial shares and if certain other conditions to the consummation of the transactions contemplated by the Merger Agreement, including the receipt of all required regulatory approvals, are satisfied or are waived on or before April 1, 1996, F&M30, 1997, Hastings Financial will merge (the "Merger") with BancorpFirst Financial in a transaction in which the following will occur on the date upon which the Merger becomes effective (the "Effective Time"): (a) The outstanding shares of F&MHastings Financial common stock, without par value $1.00 per share (the "F&M"Hastings Financial Common Stock"), will be surrendered to BancorpFirst Financial in consideration and exchange for a number of BancorpFirst Financial common shares, par value $8.00 per share (the "Bancorp"First Financial Common Stock"). The aggregate consideration to be received by all Hastings Financial shareholders is fixed in the Merger Agreement at $10,000,000 (the "Merger Price"); if the Effective Time is after January 1, 1997, the Merger Price will be fixed at $10,000,000 plus a sum equal to National Bank of Hastings' earnings after January 1, 1997, excluding transaction related costs. At the Effective Time, each of the then issued and outstanding shares of Hastings Financial Common Stock will be surrendered to First Financial in consideration and exchange for a number of First Financial common shares of Bancorp Common Stockequal to which the holders of F&M Common Stock shall be entitled as a resultquotient (the "Exchange Ratio") of: (1) the Merger Price, divided by (2) the mathematical average (the "Average") of the Merger (the "Deliverable Shares") shall be determined by dividing $12,500,000 by the mathematical average of the closing daily bid and asked prices for BancorpFirst Financial Common Stock onas reported by the National Association of Securities Dealers Automated Quotations System -("Nasdaq") National Market System ("Nasdaq") for eachthe period of the twenty consecutive20 trading days on which more than 200 shares of Bancorp Common Stock are traded ending on the secondat 4:00 p.m. (New York time) three trading daydays prior to the Effective Time, (the "Average Price").which resultant quotient is divided by 3 11 (3) the aggregate number of shares of Hastings Financial Common Stock issued and outstanding immediately prior to the Effective Time. The Exchange Ratio will be appropriately adjusted in the event of the subdivision or split of the outstanding First Financial Common Stock, a capital reorganization, or a reclassification or recapitalization affecting First Financial Common Stock. (b) F&MHastings Financial will merge with and into BancorpFirst Financial at the Effective Time and BancorpFirst Financial will be the continuing, surviving and resulting corporation in the Merger. (c) Farmers & MerchantsNational Bank ("Farmers & Merchants"), F&M'sof Hastings, Hastings Financial's only subsidiary, will merge with and into Indiana Lawrence Bank ("Indiana Lawrence"),become a wholly owned subsidiary of Bancorp (the "Subsidiary Merger"), and Indiana Lawrence will be the continuing, surviving and resulting corporation in the Subsidiary Merger. 3 11First Financial. On _______November __, 1996, the last trading date before the printing of the Proxy Statement-Prospectus, the closing sales price of a share of BancorpFirst Financial Common Stock equalled $______.$_____. If ___________November __, 1996 were the Effective Time, the Average Price would have been $_________,$________, the Deliverable SharesExchange Ratio would have equaled _________ and the aggregate number of Bancorpshares of First Financial Common Stock issued in exchange for all shares of F&MHastings Financial Common Stock would have been _____________________. The market price and each shareAverage of F&M Common Stock would have been exchanged for ____________ shares of Bancorp Common Stock (the "Exchange Ratio"). The Average Price of BancorpFirst Financial Common Stock on ___________November __, 1996 isare presented for illustrative purposes only and may not be indicative of the market price and Average Price at the Effective Time. A copy of the Merger Agreement, with Exhibits, setting forth the terms of the Merger is attached to this Proxy Statement-Prospectus as Appendix A and is incorporated herein by reference. The Board of Directors of F&MHastings Financial has unanimously approved the Merger and recommends that F&MHastings Financial shareholders vote FOR the approval of the Merger. The principal executive office of F&MHastings Financial is located at 729 Main241 West State Street, Rochester, Indiana 46975-0567.Hastings, Michigan 49058. The telephone number of F&M'sHastings Financial's principal executive office is (219) 223-3105.(616) 945-3437. The principal executive office of BancorpFirst Financial is located at Third and High Streets, Hamilton, Ohio 45011. The telephone number of Bancorp'sFirst Financial's principal executive office is (513) 867-4700. 4 12 Record Date, Solicitation And Revocability Of Proxy - --------------------------------------------------- The Board of Directors of F&MHastings Financial has established the close of business on ________________ __, 199_1996 as the record date (the "Record Date") for the determination of the F&MHastings Financial shareholders entitled to receive notice of and to vote at the Special Meeting. Only F&MHastings Financial shareholders of record on the Record Date will be entitled to notice of and to vote at the Special Meeting. Shares represented by properly executed proxies, if such proxies are received before or at the Special Meeting and not revoked, will be voted at the Special Meeting in accordance with instructions indicated in such proxies. If no such instructions are given, shares represented by such proxies will be voted: FOR approval of the Merger Agreement; FOR the adjournment of the Special Meeting in the event that a sufficient number of votes necessary to approve the foregoing proposal is not received; FOR the division of the members of the Board of Directors of F&M into three groups, as nearly equal in number as possible, with the terms of the first, second and third groups to expire at the 1996, 1997 and 1998 annual meetings of F&M shareholders, respectively; and the ratification of all actions of the Board of Directors of F&M taken prior to the division of its members into three groups. 4 12 In the discretion of the proxy holders on any other matter which may properly come before the Special Meeting. A shareholder who has given a proxy may revoke it at any time before the Proxy is exercised by giving written notice of revocation to the Secretary of F&M,Hastings Financial, by executing a later dated proxy or by attending and voting in person or by giving F&M notice of revocation in writing addressed to and received by F&M before the Special Meeting.person. All written notices of revocation and other communication with respect to revocation of proxies should be addressed to F&MHastings Financial as follows: F & M Bancorp, 729 MainHastings Financial Corporation, 241 West State Street, Rochester, Indiana 46975-0567,Hastings, Michigan 49058, Attention: George R. Hoover,David C. Wren, Assistant Secretary. The cost of the solicitation of proxies will be borne by F&M. F&MHastings Financial. Hastings Financial has not specially engaged employees or paid solicitors to aid in the solicitation of proxies, but will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of F&MHastings Financial Common Stock. In addition to solicitation by mail, directors, officers and regular employees of F&MHastings Financial may solicit proxies personally or by telegraph or telephone, without additional compensation. F&MHastings Financial shareholders are requested to complete, date and sign the accompanying proxy form and return it promptly to F&MHastings Financial in the enclosed postage paid envelope. Vote Required - ------------- APPROVAL OF MERGER. The affirmative vote of the holders of at least 75%a majority of the outstanding shares of F&MHastings Financial Common Stock entitled to vote at the Special Meeting is required for approval of the Merger Agreement. Abstentions or non-votes are counted as present; however, the effect of an abstention or a non-vote is the same as a "no" vote. 5 13 No shareholder vote on the Merger is required by the shareholders of Bancorp.First Financial. APPROVAL OF ADJOURNMENT. The affirmative vote of the holders of a majority of the shares of F&MHastings Financial Common Stock represented in person or by proxy at the Special Meeting will be required for approval of the adjournment in the event that a sufficient number of votes necessary to approve the foregoing proposals is not received. The effect of an abstention or a non-vote for purposes of the vote required to approve the adjournment is the same as a "no" vote. APPROVAL OF DIVISION OF BOARD OF DIRECTORS. The affirmative vote of the holders of a majority of the shares of F&M Common Stock will be required for approval of the division of F&M's Board of Directors into three groups and the ratification of all actions of the Board of Directors of F&M taken prior to the division of its members into three groups. The effect of an abstention or a non-vote for purposes of the vote required to approve the division of the Board of Directors and the ratification of the Board's prior actions is the same as a "no" vote. 5 13 Shares Outstanding - ------------------ At the close of business on the Record Date, there were 5,63380,463 shares of F&MHastings Financial Common Stock outstanding and entitled to vote, with each share being entitled to one vote, and there were 10078 holders of record of shares of F&MHastings Financial Common Stock. On such date, the directors and executive officers of F&MHastings Financial as a group beneficially owned 3,02141,110 shares, an amount equal to 53.63%51.09% of the shares of F&MHastings Financial Common Stock issued and outstanding on such date. The directors and executive officers have indicated their intention to vote for the Merger. See "DESCRIPTION OF THE MERGER--Interests Of Certain Persons In The Merger" and "PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT." Restrictions On Resale Of First Financial Common Stock - ------------------------------------------------------ The issuance of the shares of First Financial Common Stock in connection with the Merger has been registered under the Securities Act. Such shares may be traded freely and without restriction under federal and state securities laws by those shareholders not deemed to be "affiliates" of Hastings Financial as that term is defined in Rules 144 and 145 under the Securities Act. "Affiliates" are generally defined as persons who control, are controlled by, or are under common control with Hastings Financial at the time of the Hastings Financial Special Meeting. Accordingly, affiliates of Hastings Financial will generally include the directors and executive officers of Hastings Financial as well as Hastings Financial's largest shareholders. In general, shares of First Financial Common Stock received by affiliates of Hastings Financial pursuant to the Merger may not be publicly resold without registration under the Securities Act except pursuant to the volume and manner of sale limitations and other requirements provided in Rules 144 and 145. This Proxy Statement-Prospectus does not cover any resales of First Financial Common Stock received by affiliates of Hastings Financial. Any owner of Hastings Financial Common Stock who becomes an affiliate of First Financial will be subject to similar restrictions under Rule 144. 6 14 Pursuant to the terms of the Merger Agreement, in order for the Merger to qualify for pooling-of-interests accounting treatment, none of the First Financial Common Shares held by shareholders who are affiliates of First Financial or Hastings Financial may be sold until such time as financial results covering at least thirty days of post-Merger combined operations of First Financial and Hastings Financial have been published (the "Publication Date"). As a result, no shareholder who is an affiliate of First Financial or Hastings Financial will be permitted to sell any First Financial Common Shares for the period from the Effective Time to the Publication Date. In addition, in order to preserve the proposed tax-free status of the Merger and in order to ensure that the continuity of shareholder interest requirements related thereto, and set forth in Treasury Regulation Section 1.368-1(b), will be satisfied with respect to the Merger, certain shareholders of Hastings Financial participating in the Merger will be required to execute a letter (the "Tax Letter") indicating the number of First Financial Common Shares, if any, received by such shareholder in connection with the Merger with respect to which such shareholder has a present plan or intention to dispose of or sell. Except as provided above, there will be no restrictions on the transfer of shares of First Financial Common Stock issued by First Financial pursuant to the Merger. Other Matters Both Article VII, Section 7.3 of the Articles of Incorporation of F&M and Article III, Section 2 of the By-Laws of F&M (the "Provisions") require that the Board of Directors of F&M be divided into three groups, each group to be composed of three directors. The Provisions further require that each group of directors serve for a term of three years, with one group to stand for reelection at each annual meeting of the shareholders of F&M.- ------------- The Board of Directors of F&M, however, has not previously been divided into three groups and, as a result, each individual previously elected to serve as a member of the Board of Directors of F&M has served for only a one-year period. In order to resolve this discrepancy, the Board of Directors of F&M has proposed that the shareholders of F&M approve the division of the Board into three groups, as nearly equal in number as possible, with terms of the three groups to expire at the 1996, 1997 and 1998 annual meetings of the shareholders of F&M, respectively. As a result, subject to the approval of the shareholders of F&M, the terms of the current members of the Board of Directors of F&M will be as follows: Terms Expiring at 1996 Annual Meeting Wendell B. Bearss H. Robert Bradley Carol J. Bridge Terms Expiring at 1997 Annual Meeting William J. Gordon J. Frederick Hoffman Terms Expiring at 1998 Annual Meeting Robert E. Peterson V. Lorene Rauschke Although the shareholders of F&M may approve the division of the Board of Directors of F&M as described above, if the Merger is consummated the directors of F&M will resign as of the Effective Time and will not become members of the Board of Directors of Bancorp. The shareholders of F&M also will vote on whether to ratify all actions of the Board of Directors of F&M taken prior to the division of its members into three groups. 6 14 The Board of Directors of F&MHastings Financial is not aware of any other business to come before the Special Meeting other than the matters described above in the Proxy Statement-Prospectus. However, if any other matters should properly come before the Special Meeting, the holders of the proxies will act in accordance with their best judgment. Shareholder Proposals To Bancorp If an eligible shareholder wishes to present a proposal for action at the 1997 Annual Meeting of Bancorp, it shall be presented to management by certified mail, written receipt requested, not later than November 16, 1996, for inclusion in Bancorp's Proxy Statement and form of Proxy relating to that meeting. Any such proposal must comply with Rule 14a-8 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act. Proposals shall be sent to First Financial Bancorp., Attention: Mike O'Dell, Comptroller, 300 High Street, P.O. Box 476, Hamilton, Ohio 45012-0476. 7 15 SUMMARY The following is a brief summary of certain information in respect of matters to be considered at the Special Meeting of F&MHastings Financial shareholders and is not intended to be a complete statement of all material facts regarding the matters to be considered at the Special Meeting. The Summary is qualified in its entirety by reference to the more detailed information contained elsewhere in this Proxy Statement-Prospectus, the accompanying appendices and the documents incorporated herein by reference. Terms Of The Merger Agreement The Deliverable Shares to which F&M shareholders shall be entitled as a result- ----------------------------- Upon consummation of the Merger, shallHastings Financial shareholders will be determined by dividing $12,500,000 byentitled to receive for each share of Hastings Financial Common Stock a number of shares of First Financial Common Stock equal to the Average Price. InExchange Ratio. The Exchange Ratio will be appropriately adjusted in the event of the subdivision or split of the outstanding Bancorp shares, the payment of a dividend in Bancorp shares orFirst Financial Common Stock, a capital reorganization, or a reclassification or recapitalization affecting the closing price for Bancorp shares during some but not all of said trading days, the number of Deliverable Shares will be adjusted proportionately so that the holders of outstanding F&M shares shall receive the number of Bancorp shares that represents the same percentage of the value of outstanding Bancorp shares at the Effective Time as would have been represented by the number of shares such shareholders would have received if the event had not occurred. Each holder of F&M shares shall be entitled to a portion of the Deliverable Shares that is equal to the number of Deliverable Shares multiplied by a fraction, the numerator of which is the number of F&M shares held by that shareholder immediately prior to the Effective Time and the denominator of which is the number of F&M shares outstanding immediately prior to the Effective Time.First Financial Common Stock. Reasons For theThe Merger - ---------------------- The Board of Directors of F&MHastings Financial believes that the Merger is in the best interests of F&MHastings Financial and its shareholders. The Board of Directors' recommendation is based on a number of factors discussed in this Proxy Statement-Prospectus. See "DESCRIPTION OF THE MERGER--Background And Reasons For The Merger." These factors include the costs of regulatory compliance and technological advancements and increased competition in the financial services industry. 8 16 Approval Of Merger Agreement - ---------------------------- PARTIES TO THE MERGER AGREEMENT. BancorpFirst Financial is a corporation organized under the laws of the State of Ohio and is registered as a bank holding company as well as a savings and loan holding company. Its principal executive offices are located in Hamilton, Ohio. BancorpFirst Financial owns ten commercial banking subsidiaries - -Firstthe following subsidiaries: Bank subsidiaries: First National Bank of Southwestern Ohio, Hamilton, Ohio;Ohio Citizens Commercial Bank & Trust Company, Celina, Ohio;Ohio Van Wert National Bank, Van Wert, Ohio;Ohio Union Trust Bank, Union City, Indiana;Indiana Indiana Lawrence Bank, North Manchester, Indiana;Indiana Citizens First State Bank, Hartford City, Indiana;Indiana Union Bank and Trust Company, North Vernon, Indiana;Indiana Clyde Savings Bank Co.,Company, Clyde, Ohio;Ohio Peoples Bank and Trust Company, Sunman, Indiana;Indiana Bright National Bank, Flora, Indiana; and two savingsIndiana 8 16 Savings bank subsidiaries -subsidiaries: Fidelity Federal Savings Bank, Marion, Indiana and Home Federal Bank, a Federal Savings Bank, Hamilton, Ohio.Ohio Finance company subsidiary: First Finance Mortgage Company of Southwestern Ohio, Inc., Hamilton, Ohio At SeptemberJune 30, 1995, Bancorp1996, First Financial had total assets of approximately $2.0$2.2 billion, deposits of approximately $1.6$1.8 billion and shareholders' equity of approximately $221$249 million. See Form 10-Q for the quarter ended SeptemberJune 30, 19951996 and "Item 1. Business" in the BancorpFirst Financial Form 10-K, both of which have previously been incorporated herein by reference. F&MHastings Financial was organized in 19841988 under the laws of the State of IndianaMichigan and is registered as a bank holding company. Its only subsidiary, Farmers & Merchants,National Bank of Hastings, was organized in 1934 under the laws1933. National Bank of the State of Indiana andHastings is a state chartered bank. Farmers & Merchants isprincipally engaged in the business of making mortgage loans secured by residential or other real property, and Farmers & Merchants also makes secured and unsecured consumer and commercial loans. LoanLoanable funds are obtained primarily from deposits and loan principal repayments. In addition to originating loans, Farmers & MerchantsNational Bank of Hastings invests in U.S. Treasurytreasury and other government agency securities, corporate notes and municipal securities. Farmers & MerchantsNational Bank of Hastings conducts its business through two offices located in Rochester and oneits main office located in Kewanna, Indiana.Hastings, Michigan and a branch office located in Wayland, Michigan. Its primary market area consists of the citiescity of RochesterHastings, Michigan and Kewanna, Indianathe Gun Lake-Wayland area in Michigan and the contiguous areaareas within Fulton County, Indiana.Barry and Allegan Counties, Michigan. THE MERGER. If the Merger Agreement is approved by the F&MHastings Financial shareholders byholding at least a 75% majority of the outstanding F&MHastings Financial shares, and if certain other conditions to the consummation, including the receipt of all required regulatory approvals, are satisfied or are waived, on or before April 1, 1996, F&MHastings Financial will merge with and into BancorpFirst Financial in a transaction in which the following will occur as of the Effective Time: (a) TheEach of the then outstanding shares of F&MHastings Financial Common Stock will be surrendered to BancorpFirst Financial in consideration and exchange for Bancorp Common Stock. The Deliverable Shares to which the holdersa number of F&Mshares of First Financial Common Stock shall be entitled will be determined by dividing $12,500,000 byequal to the Average Price.Exchange Ratio; (b) F&MHastings Financial will merge with and into BancorpFirst Financial at the Effective Time and BancorpFirst Financial will be the continuing, surviving and resulting corporation in the Merger. 9 17Merger; and (c) Farmers & MerchantsNational Bank of Hastings will merge with and into Indiana Lawrence,become a wholly owned subsidiary of Bancorp, and Indiana Lawrence will be the continuing, surviving and resulting corporation in the Subsidiary Merger.First Financial. 9 17 On _______November __, 1996, the last trading date before the printing of the Proxy Statement-Prospectus, the closing sales price of a share of BancorpFirst Financial Common Stock equalled $______.$_____. If ________November __, 1996 were the Effective Time, the Average Price would have been $_________,$________, the Deliverable SharesExchange Ratio would have equaled _________ and the aggregate number of Bancorpshares of First Financial Common Stock issued in exchange for all shares of F&MHastings Financial Common Stock would have been _____________________. The market price and the Exchange Ratio would have equaled ______________ shares. The Average Price of BancorpFirst Financial Common Stock on ________November __, 1996 isare presented for illustrative purposes only and may not be indicative of the market price and Average Price at the Effective Time. There were 5,63380,463 shares of F&MHastings Financial Common Stock outstanding on _______November __, 19__.1996. See "DESCRIPTION OF THE MERGER--Structure Of The Merger" and "--Effective Time Of The Merger," as well as the copy of the Merger Agreement attached hereto as Appendix A. RECOMMENDATION OF THE BOARD OF DIRECTORS. The F&MHastings Financial Board of Directors has unanimously approved the Merger Agreement and recommends that shareholders vote FOR approval of the Merger Agreement. See "DESCRIPTION OF THE MERGER--Background And Reasons For The Merger." OPINION OF FINANCIAL ADVISOR TO F&M. Professional Bank Services, F&M'sHASTINGS FINANCIAL. Austin Associates, Inc. ("AAI"), Hastings Financial's financial advisor, has rendered its opinion to F&M'sHastings Financial's Board of Directors to the effect that, as of the date the Merger Agreement was signed and as of such opinion, the Average Price anddate of this Proxy Statement- Prospectus, the Exchange Ratio arewas fair, to F&M's shareholders from a financial point of view.view, to Hastings Financial's shareholders. A copy of Professional Bank Services'AAI's fairness opinion is attached hereto as Appendix B and should be read in its entirety for information with respect to the qualificationsassumptions and assumptionsjustifications made and other matters considered and limitations on the reviews undertaken.considered. See "DESCRIPTION OF THE MERGER--Opinion of Hastings Financial's Financial Advisor To F&M"Advisor." RIGHTS OF APPRAISAL. Any shareholder of F&MHastings Financial who (1) delivers before the shareholdersshareholders' vote a written notice of intent to demand payment for such shareholder's shares in the manner provided by Indiana Code Chapter 23-1-44 and whoMichigan Business Corporations Act Section 450.1765, (2) does not vote in favor of the approval of the Merger Agreement and (3) strictly complies with certain procedures set forth in Sections 450.1762-450.1774, a copy of which is attached hereto as Appendix C, shall be entitled, if and when the Merger becomes effective, and upon strict compliance with certain procedures set forth in Chapter 23-1-44, a copy of which is attached hereto as Appendix C, to receive the value of the F&MHastings Financial Common Stock owned by such shareholder at the time and in the manner set forth in Chapter 23-1-44.Sections 450.1762-450.1774. See "DESCRIPTION OF THE MERGER--Shareholders' Rights Ofof Appraisal." 10 18 FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS. It is anticipated that the Merger will be a non-taxable reorganization for federal income tax purposes and that no gain or loss for federal income tax purposes will be recognized by the shareholders of F&MHastings Financial upon distribution to them of shares of Bancorp.First Financial. A gain or loss may be recognized, however, on cash received in place of fractional shares. Holders of F&MHastings Financial Common Stock, who demand, in accordance with Chapter 23-1-44Section 450.1762 of the IndianaMichigan Business Corporation Law,Corporations Act, to receive cash in exchange for the shares of F&MHastings Financial Common Stock they actually own or are deemed by the Internal Revenue Service ("IRS") to own constructively, will recognize a capital gain or loss on the exchange. See "DESCRIPTION OF THE MERGER--Federal Income Tax Consequences Of The Merger." 10 18 REPRESENTATIONS AND WARRANTIES. Both BancorpFirst Financial and F&MHastings Financial have made certain representations and warranties in the Merger Agreement. Such representations and warranties address, among others, certain matters related to the organization, capital structure, financial statements and the businesses of F&MHastings Financial and Bancorp.First Financial. They also specifically discuss payment of dividends in the period prior to consummation as well as default under material contracts. See the Merger Agreement attached as Appendix A for a more detailed discussion. REGULATORY APPROVALS AND OTHER CONDITIONS. The proposed Merger and related transactions are subject to approval by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit Insurance Corporation (the "FDIC") and the Indiana Department of Financial Institutions. Applications. An application requesting approval werewas submitted to the Federal Reserve Board on __________________ __, 1995, to the FDIC on ___________ __, 1995 and to the Indiana Department of Financial Institutions on _______ __, 1995.1996. There can be no assurance that the approval of the Federal Reserve Board the FDIC or the Indiana Department of Financial Institutions will be given or whether conditions, if any, will be imposed on such approval. See "DESCRIPTION OF THE MERGER--Regulatory Considerations." The Merger is subject to numerous additional conditions, including, but not limited to, approval of the Merger by F&MHastings Financial shareholders holding at least a 75% majority of F&MHastings Financial Common Stock and the absence of any material adverse changes in the corporate status, business, operations or financial condition of BancorpFirst Financial of Hastings Financial since December 31, 1994 or of F&M since April 30, 1995. See "DESCRIPTION OF THE MERGER--Conditions To Consummation Of The Merger." TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated at any time prior to the Effective Time by the mutual consent of the Boards of Directors of F&MHastings Financial and Bancorp.First Financial. Either F&MHastings Financial or BancorpFirst Financial may also terminate the Merger Agreement upon the occurrence of certain events, such as not obtaining the requisite approval of all required regulatory authorities or the shareholders of F&MHastings Financial or not consummating the Merger on or before April 1, 1996.30, 1997. The Merger may also be terminated by BancorpFirst Financial if the Average Price of BancorpFirst Financial Common Stock falls below $28.48$27.625 per share or by F&MHastings Financial if the Average Price of BancorpFirst Financial Common Stock exceeds $38.53$37.375 per share. See "DESCRIPTION OF THE MERGER--Termination Of The Merger." 11 19 EFFECTIVE TIME. BancorpFirst Financial and F&MHastings Financial intend to consummate the Merger on January 1, 1997 or as soon thereafter as practicable after all required regulatory and shareholder approvals have been obtained and the other conditions to consummation of the Merger have been satisfied. Bancorp and F&M are hopeful that all conditions prior to consummation of the Merger will be satisfied so that the Merger can be consummated during the first quarter of 1996. The Merger Agreement provides that itthe Merger may be terminated by either party if the Mergerit has not been consummated by April 1, 1996.30, 1997. See "DESCRIPTION OF THE MERGER--EffectiveMERGER-- Effective Time Of The Merger." 11 19 MARKET VALUE OF COMMON STOCK. The BancorpFirst Financial Common Stock is traded in the over-the-counter market and is quoted by the Nasdaq National Market System. On May 22, 1995,July 1, 1996, the last trading day prior to the first public announcement of the proposed Merger, the closing sale price for a share of BancorpFirst Financial Common Stock was $33.125$32.00 per share. Assuming the Merger was consummated as of May 22, 1995,July 1, 1996, the Average Price would have been $33.453125,$32.568750, the Exchange Ratio would have equaled 66.3336001333.815950 shares and the Deliverable Sharesaggregate number of Bancorpshares of First Financial Common Stock issued in exchange for all shares of F&MHastings Financial Common Stock would have been 373,657 shares and307,043 shares. Assuming the $32.00 per share closing price for First Financial Common Stock on July 1, 1996, the equivalent per share value (the closing price multiplied by the Exchange Ratio) of BancorpFirst Financial Common Stock which would have been issued and exchanged for each F&MHastings Financial share would have been $2,197.30.$122.11. On September 24, 1996, First Financial's Board of Directors declared a 10% stock dividend to be distributed on November 1, 1996. The illustration above has NOT been adjusted for any effects of the stock dividend on First Financial's Average or market price per share. Assuming a 10% market price decrease for the effect of the stock split, the adjusted Average would have been $29.311875, the adjusted Exchange Ratio would have equaled 4.239945, the aggregate number of shares of First Financial Common Stock issued in exchange for all shares of Hastings Financial Common Stock would have been 341,159 shares and the equivalent per share value of First Financial Common Stock which would have been issued and exchanged for each Hastings Financial share would have remained $122.11. The market price, Average, adjusted market price and adjusted Average Price on May 22, 1995July 1, 1996 are presented for illustrative purposes only and may not be indicative of the market price and Average Price at the Effective Time. F&MHastings Financial Common Stock is not actively traded in any established market. See "COMPARATIVE MARKET AND DIVIDEND INFORMATION" for additional market price information. Other Possible Acquisition By First Financial - --------------------------------------------- As of the date of this Proxy Statement-Prospectus, First Financial had entered into a definitive agreement of merger with Farmers State Bancorp, Liberty, Indiana ("Farmers State"). The consideration to be paid to Farmers State's shareholders pursuant to the merger agreement is fixed at $7,833.51 per each share of Farmers State Bancorp common stock outstanding, payable in cash. As of May 1, 1996, 967 shares of Farmers State Bancorp common stock were outstanding, making the total consideration to be paid for all Farmers State shares equal to approximately $7,575,000. After the merger, Farmers State Bank, Farmers State's only subsidiary, will become a wholly owned subsidiary of First Financial. 12 20 As of December 31, 1995, Farmers State had total assets of approximately $63.6 million, loans outstanding of $41.8 million, total deposits of $58.5 million and total shareholders' equity of $4.2 million. Its equity-to-assets ratio at December 31, 1995 was 6.54%. Farmers State had net earnings for the year ended December 31, 1995 of approximately $424,000 or $438.83 per share. Information regarding the financial condition and operating results of Farmers State is not included in the Pro Forma Financial Statements because the acquisition of Farmers State is not anticipated to result in the acquisition by First Financial of a significant subsidiary under applicable regulations of the Exchange Act and is not anticipated to have a material effect on the financial condition and results of operations of First Financial. See "DESCRIPTION OF THE MERGER--Pro Forma Unaudited Financial Information." The merger with Farmers State is subject to numerous conditions including, among others, regulatory and shareholder approvals. First Financial is unable to predict when or whether such conditions will be satisfied. Accordingly, there can be no assurance that the proposed merger with Farmers State will be consummated. Provided all conditions are met and approvals obtained, the proposed merger with Farmers State is anticipated to be completed during the fourth quarter of 1996. Summary Of Selected Unaudited Financial Data And Per Share Data - --------------------------------------------------------------- The historical data presented on the following pages for BancorpFirst Financial has been derived from its consolidated financial statements; see "AVAILABLE INFORMATION--Documents Incorporated by Reference." Bancorp has a December 31 fiscal year end while F&M has a fiscal year ending April 30. The historical data for F&M presented on the following pages reflects the nine months ended September 30 and the twelve months ended December 31 in order to be consistent with Bancorp's year end and to aid comparability. 1213 2021 SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
NINESIX MONTHS ENDED SEPTEMBERJUNE 30, YEARS ENDED DECEMBER 31, -------- ------------------------ ---------------------------------------------------------------1996 1995 19941995 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- ----------- --------------------- ---------- ---------- --------- -------- (Dollars in thousands, except per share data) HASTINGS FINANCIAL (HISTORICAL) (1) F&M (HISTORICAL) (1) Net earnings (A) $ 471336 $ 545328 $ 700616 $ 563403 $ 598412 $ 466515 $ 389376 Total assets (period end) 59,966 60,158 62,993 65,118 63,236 61,861 54,79446,847 44,489 46,140 45,797 44,690 46,556 39,576 Long-term borrowings (period end) 0 0 0 0 0 0 0 Net earnings per share (A) 83.51 96.80 124.25 99.96 106.16 82.31 68.284.41 4.26 8.10 5.08 5.23 6.57 4.77 Dividends declared per share 30.00 26.00 26.00 26.00 26.00 26.00 27.501.25 0.00 2.25 1.75 1.65 1.65 1.65 Book value per share (period end) 1,384.55 1,292.93 1,320.43 1,247.32 1,173.36 1,093.21 1,027.9766.45 63.02 65.12 58.33 55.74 52.12 49.41 Average shares outstanding (B) 5,633 5,633 5,633 5,633 5,633 5,665 5,69776,130 76,915 76,036 79,249 78,883 78,530 78,781 Shares outstanding (period end) (B) 5,633 5,633 5,633 5,633 5,633 5,633 5,697 BANCORP79,463 75,463 75,463 78,367 78,367 78,367 78,367 FIRST FINANCIAL (HISTORICAL) (2) Net earnings (A) $ 23,47516,871 $ 21,65715,358 $ 31,789 $ 28,173 $ 25,194 $ 21,770 $ 18,600 $ 14,053 Total assets (period end) 1,969,389 1,895,6182,175,381 1,911,687 2,103,375 1,922,643 1,810,673 1,816,414 1,860,955 1,631,481 Long-term borrowings (period end) 4,541 0 02,820 0 3,983 4,564 5,119 1,252 Net earnings per share (A) 1.91 1.771.28 1.26 2.55 2.31 2.06 1.77 1.51 1.13 Dividends declared per share 0.78 0.660.60 0.52 1.08 0.98 0.82 0.74 0.66 0.62 Book value per share (period end) 17.55 15.9018.59 16.97 17.99 15.95 14.85 13.66 12.44 11.60 Average shares outstanding (B) 12,311,609 12,213,20113,203,147 12,208,840 12,488,168 12,210,753 12,211,405 12,318,805 12,356,986 12,402,738 Shares outstanding (period end) (B) 12,568,641 12,204,57513,388,884 12,212,156 13,013,422 12,204,575 12,207,004 12,272,065 12,391,865 12,402,738 PRO FORMA BANCORPFIRST FINANCIAL AND F&MHASTINGS FINANCIAL COMBINED ASSUMING 65.531671233.751871 EXCHANGE RATIO (3) Net earnings (A) $ 23,94617,207 $ 22,20215,686 $ 28,87332,405 $ 25,75728,576 $ 22,36825,606 $ 19,06622,285 $ 14,44218,976 Net earnings per share (A) 1.89 1.76 2.301.27 1.25 2.53 2.28 2.05 1.761.77 1.50 1.13 Dividends declared per share: Bancorp 0.78 0.66First Financial 0.60 0.52 1.08 0.98 0.82 0.74 0.66 0.62 Book value per share (period end) 17.65 16.01 16.07 14.97 13.79 12.57 11.7318.57 16.94 17.95 15.93 14.84 13.66 12.45 Average shares outstanding (B) 12,680,749 12,582,341 12,579,893 12,580,545 12,687,945 12,726,126 12,771,87813,505,034 12,510,727 12,790,055 12,512,640 12,513,292 12,620,692 12,658,873 Shares outstanding (period end) (B) 12,937,781 12,573,715 12,573,715 12,576,144 12,641,205 12,761,005 12,771,87813,690,771 12,514,043 13,315,309 12,506,462 12,508,891 12,573,952 12,693,752 PRO FORMA F&MHASTINGS FINANCIAL ONE SHARE EQUIVALENT ASSUMING 65.531671233.751871 EXCHANGE RATIO (4) Net earnings per share (A) $ 123.854.76 $ 115.344.69 $ 150.729.49 $ 134.348.55 $ 115.347.69 $ 98.306.64 $ 74.055.63 Dividends declared per share 51.11 43.25 64.22 53.74 48.49 43.25 40.632.25 1.95 4.05 3.68 3.08 2.78 2.48 Book value per share 1,156.63 1,049.16 1,053.09 981.01 903.68 823.73 768.69
- --------------------69.67 63.56 67.35 59.77 55.68 51.25 46.71 - ----------- (A) Before cumulative effect of changes in accounting principles. (B) Average and period end shares outstanding are not rounded to the nearest thousand. 13
14 2122 SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
NINESIX MONTHS ENDED SEPTEMBERJUNE 30, YEARS ENDED DECEMBER 31, -------- ------------------------ ---------------------------------------------------------------1996 1995 19941995 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- ----------- --------------------- ---------- ---------- ---------- ---------- ---------- -------- (Dollars in thousands, except per share data) PRO FORMA FIRST FINANCIAL AND HASTINGS FINANCIAL COMBINED ASSUMING 3.325237 EXCHANGE RATIO (5) PRO FORMA BANCORP AND F&M COMBINED ASSUMING 57.59320573 EXCHANGE RATIO (5) Net earnings (A) $ 23,94617,207 $ 22,20215,686 $ 28,87332,405 $ 25,75728,576 $ 22,36825,606 $ 19,06622,285 $ 14,44218,976 Net earnings per share (A) 1.90 1.77 2.301.28 1.26 2.54 2.29 2.05 1.77 1.50 1.13 Dividends declared per share: Bancorp 0.78 0.66First Financial 0.60 0.52 1.08 0.98 0.82 0.74 0.66 0.62 Book value per share (period end) 17.71 16.07 16.13 15.02 13.84 12.61 11.7718.61 16.99 18.00 15.97 14.88 13.69 12.48 Average shares outstanding (B) 12,636,032 12,537,624 12,535,176 12,535,828 12,643,228 12,681,409 12,727,16113,470,706 12,476,399 12,755,727 12,478,312 12,478,964 12,586,364 12,624,545 Shares outstanding (period end) (B) 12,893,064 12,528,998 12,528,998 12,531,427 12,596,488 12,716,288 12,727,16113,656,443 12,479,715 13,280,981 12,472,134 12,474,563 12,539,624 12,659,424 PRO FORMA F&MHASTINGS FINANCIAL ONE SHARE EQUIVALENT ASSUMING 57.593205733.325237 EXCHANGE RATIO (5) Net earnings per share (A) $ 109.434.26 $ 101.944.19 $ 132.468.45 $ 118.077.61 $ 101.946.82 $ 86.395.89 $ 65.084.99 Dividends declared per share 44.92 38.01 56.44 47.23 42.62 38.01 35.712.00 1.73 3.59 3.26 2.73 2.46 2.19 Book value per share 1,019.98 925.52 928.98 865.05 797.09 726.25 677.8761.88 56.50 59.85 53.10 49.48 45.52 41.50 PRO FORMA BANCORPFIRST FINANCIAL AND F&MHASTINGS FINANCIAL COMBINED ASSUMING 77.916650874.498850 EXCHANGE RATIO (6) Net earnings (A) $ 23,94617,207 $ 22,20215,686 $ 28,87332,405 $ 25,75728,576 $ 22,36825,606 $ 19,06622,285 $ 14,44218,976 Net earnings per share (A) 1.88 1.75 2.281.27 1.25 2.52 2.27 2.04 1.751.76 1.49 1.12 Dividends declared per share: Bancorp 0.78 0.66First Financial 0.60 0.52 1.08 0.98 0.82 0.74 0.66 0.62 Book value per share (period end) 17.56 15.92 15.98 14.89 13.71 12.50 11.6618.48 16.86 17.87 15.85 14.77 13.59 12.39 Average shares outstanding (B) 12,750,513 12,652,105 12,649,657 12,650,309 12,757,709 12,795,890 12,841,64213,565,138 12,570,831 12,850,159 12,572,744 12,573,396 12,680,796 12,718,977 Shares outstanding (period end) (B) 13,007,545 12,643,479 12,643,479 12,645,908 12,710,969 12,830,769 12,841,64213,750,875 12,574,147 13,375,413 12,566,566 12,568,995 12,634,056 12,753,856 PRO FORMA F&MHASTINGS FINANCIAL ONE SHARE EQUIVALENT ASSUMING 77.916650874.498850 EXCHANGE RATIO (6) Net earnings per share (A) $ 146.485.71 $ 136.355.62 $ 177.6511.34 $ 158.9510.21 $ 136.359.18 $ 116.107.92 $ 87.276.70 Dividends declared per share 60.77 51.42 76.36 63.89 57.66 51.42 48.312.70 2.34 4.86 4.41 3.69 3.33 2.97 Book value per share 1,368.22 1,240.43 1,245.11 1,160.18 1,068.24 973.96 908.51
- --------------------83.14 75.85 80.39 71.31 66.45 61.14 55.74 - -------------- (A) Before cumulative effect of changes in accounting principles. (B) Average and period end shares outstanding are not rounded to the nearest thousand. 14 15 2223 NOTES TO SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA -------------------------------------------------------------------------- (1) Earnings per share is calculated by dividing net earnings for the period by the average number of common shares outstanding for the period. Book value per share is calculated by dividing total shareholders' equity at the end of the period by the number of shares outstanding at the end of the period. (2) Dividend information on Bancorp'sFirst Financial's subsidiaries which have merged with BancorpFirst Financial under the pooling-of-interests method after January 1, 1989,1991 has not been recalculated or added to Bancorp'sFirst Financial's historical dividend information. BancorpFirst Financial has adjusted historical information to reflect the issuance of stock splits. The shares outstanding data has been adjusted to reflect treasury stock transactions. (3) The PRO FORMA BANCORPFIRST FINANCIAL AND F&MHASTINGS FINANCIAL COMBINED reflects the combined results of BancorpFirst Financial and F&MHastings Financial after giving effect to the pooling-of-interests method of accounting. For illustrative purposes, the combined results assume the merger was consummated on January 1, 1990.1991. The per share data, average shares outstanding and shares outstanding (period end) were calculated assuming the issuance of 369,140 Deliverable Shares301,887 shares of BancorpFirst Financial Common Stock at an Average equal to $33.8625,$33.125, which is the Average that would have been in effect if the Merger was effective October 31, 1995 (65.53167123September 3, 1996 (3.751871 Exchange Ratio). The number of BancorpFirst Financial shares to be issued at consummation is dependent on the Average Price at that time and cannot be determined before that date. The pro forma financial results included in this table are for illustrative purposes only. (4) The Deliverable Shares to which F&M shareholders shall be entitled as a resultUpon consummation of the Merger, shalleach Hastings Financial shareholder will be determinedto entitled to receive First Financial shares equal to the total number of shares of Hastings Financial Common Stock owned by dividing $12,500,000such shareholder multiplied by the Average Price. InExchange Ratio. The Exchange Ratio will be appropriately adjusted in the event of the subdivision or split of the outstanding Bancorp shares, the payment of a dividend in Bancorp shares orFirst Financial Common Stock, a capital reorganization, or a reclassification or recapitalization affecting First Financial Common Stock. Since the closing price for Bancorp shares during some but not all of said trading days, the number of Deliverable Shares will be adjusted proportionately so that the holders of outstanding F&M shares shall receive the number of Bancorp shares that represents the same percentage of the value of outstanding Bancorp shares at the Effective Time as would have been represented by the number of shares such shareholders would have received if the event had not occurred. The Exchange Ratio is determined by dividing the number of Deliverable Shares by the number of F&M shares outstanding and represents the number of shares of Bancorp Common Stock that each share of F&M Common Stock will be exchanged for at the Effective Time. Since the Deliverable Shares is not determinable at the printing of this Proxy Statement-Prospectus, F&M'sHastings Financial's one share equivalent pro forma net earnings, dividends and book value per share, calculated assuming an Exchange Ratio of 65.531671233.751871 shares, are shown for illustrative purposes only. 1516 2324 (5) The Merger may be terminated by F&MHastings Financial if the Average Price of Bancorp Common Stock exceeds $38.53.$37.375. If the Average Price at the Effective Time is $38.53,$37.375, the Deliverable SharesExchange Ratio will be 3.325237 shares and the aggregate number of Bancorpshares of First Financial Common Stock issued in exchange for all shares of F&MHastings Financial Common Stock will be 324,423 shares and the Exchange Ratio will be 57.59320573267,559 shares. The Deliverable Sharesnumber of First Financial shares to be issued at consummation is dependent on the Average Price at the Effective Time and cannot be determined before that timedate. The pro forma financial results assuming an Average of $37.375 are for illustrative purposes only. (6) The Merger may be terminated by First Financial if the Average is less than $27.625. If the Average at the Effective Time is $27.625, the Exchange Ratio will be 4.498850 shares and the aggregate number of shares of First Financial Common Stock issued in exchange for all shares of Hastings Financial Common Stock will be 361,991 shares. The number of First Financial shares to be issued at consummation is dependent on the Average at the Effective Time and cannot be determined before that date. The pro forma financial results assuming an Average Price of $38.53$27.625 are for illustrative purposes only. (6) The Merger may be terminated by Bancorp if the Average Price of Bancorp Common Stock is less than $28.48. If the Average Price at the Effective Time is $28.48, the Deliverable Shares of Bancorp Common Stock issued in exchange for all shares of F&M Common Stock will be 438,904 shares and the Exchange Ratio will be 77.91665087 shares. The Deliverable Shares to be issued at consummation is dependent on the Average Price at that time and cannot be determined before that date. The pro forma financial results assuming an Average Price of $28.48 are for illustrative purposes only. 1617 2425 DESCRIPTION OF THE MERGER This section of the Proxy Statement-Prospectus describes certain of the more important aspects of the Merger. The following description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement which is set forth in Appendix A to this Proxy Statement-Prospectus. All shareholders are urged to read the Merger Agreement in its entirety. Background And Reasons For The Merger Culminating in late 1994 and early 1995, the F&M- ------------------------------------- On January 15, 1996, Hastings Financial's Board of Directors obtainedengaged Austin Associates, Inc. ("AAI"), a better understandingconsulting and investment banking firm of Toledo, Ohio, to explore the possibility of enhancing shareholder value through affiliation with a regional bank holding company. After performing an initial analysis and review, contact was made with 24 potentially interested institutions. After providing confidential information on Hastings Financial, eleven proposals were received, including First Financial's. Hastings Financial's Board of Directors determined that First Financial's proposal presented the best opportunity for enhancing shareholder value. After an exchange of additional information and preliminary negotiations, First Financial and Hastings Financial entered into the Merger Agreement with regard to the Merger on July 2, 1996, following approval of the changedMerger Agreement by their respective boards of directors. First Financial's management and changing environment in which a community bank operates. The opportunitiesHastings Financial's management and challenges facing a community bank centered in Fulton County, Indiana came into sharper perspective as a resultBoard of Directors, and their respective representatives, negotiated the Merger Price and other terms of the Board's strategic thinking aboutMerger Agreement on an arm's-length basis. Among other items considered in the futuredecision to accept the First Financial proposal were the prospects for Hastings Financial and First Financial as separate institutions and combined; the anticipated tax-free nature of Farmers & Merchants Bank. It became apparentthe merger to the Board that (i)shareholders of Hastings Financial receiving solely First Financial common stock in exchange for their shares of Hastings Financial common stock; the regulatory burden every commercial bank faces imposesincreased liquidity since First Financial is traded in the over-the-counter market and its share prices reported on the Nasdaq National Market System; the timeliness of a special hardship on a community bank that is not operating at a scale to permit it to efficiently spreadmerger given the costsstate of developmentthe economy, the competitive nature of the banking industry and implementation of compliance systems across a large base of revenues; (ii) technological advances in financial products and servicesthe stock market, as well as anticipated trends; increased regulatory requirements on banks in internalgeneral and Hastings Financial; relevant price information involving recent comparable bank systems can be exploited more efficiently by a larger institution;acquisitions which occurred in Michigan, the Midwest and (iii) increased competition resulting from newthe United States; and bigger financial services competitors negatively affects the potential for growthan analysis of a community bank. The cumulative effect of these and other factors on creating value for F&M's shareholders weighed heavily in favor of changing F&M's historic course of remaining independent. With these and other factors in mind, in March 1995, the F&M Board of Directors formed a Research Committee and charged italternatives to Hastings Financial merging with the responsibility to investigate possible affiliationsFirst Financial, including pursuing mergers with other financial institutions. From time to time, F&M had received various unsolicited indications of interest in possible affiliations with larger financial institutions in northern Indiana. The Research Committee began discussions in earnest with such institutions, as well as with other institutions that were determined to have a present interest in an affiliation with F&M, provided that such financial institutions also met the criteria the Board and the Committee developed for an attractive merger partner, described below. As a part of its deliberations in March 1995,interested acquirors. In addition, the Board of Directors considered the opinion of F&M reaffirmed its commitmentAAI indicating that the consideration to its various constituencies, includingbe received by Hastings Financial shareholders under the Merger Agreement was fair from a financial point of view. 18 26 The Board of Directors of Hastings Financial also considered the impact of the Merger on Hastings Financial's and National Bank of Hastings' customers and employees and the communities served by Farmers & MerchantsNational Bank especially Rochesterof Hastings (the "Bank"). First Financial's historical practice of retaining employees of acquired institutions and Kewanna,its competitive salary and benefit programs were considered, as was the opportunity for training, education, growth and advancement of the Bank's employees within First Financial or one of its subsidiaries. The Board especially desiredof Directors of Hastings Financial examined First Financial's continuing commitment to maximize value to shareholders. As a resultthe communities served by institutions previously acquired by First Financial. Further, from the standpoint of these considerations,the Bank's customers, it was anticipated that more products and services would become available because of First Financial's greater resources. Based upon the foregoing factors, the Board of Directors of F&M developed some criteriaHastings Financial concluded that it was advantageous to use as a framework for analysis in considering any merger partner, including the following: (a) An attractive price,merge with a clear preference for F&M shareholders having the ability to receive a merger partner's stock in a transaction structured to be tax-free to F&M shareholders who receive stock; 17 25 (b)First Financial. The likely continuationimportance of the essential naturevarious factors relative to one another cannot be precisely determined or stated. Opinion of the services offered by Farmers & Merchants Bank in Rochester and Kewanna; (c) Liquidity, through the ownership of the merger partner's stock as comparedFinancial Advisor to F&M stock; and (d) The avoidance of undue disruption of the lives of the employees of Farmers & Merchants Bank. In March and April 1995, the Research Committee met with representatives of five financial institutions, some of whom had previously expressed an interest inHastings Financial - -------------------------------------------------- AAI is a merger with F&M and others whose interest developed for the first time. In April, four institutions, who were regarded preliminarily as potentially acceptable merger partners and who had such interest in F&M that they had visited the main office of Farmers & Merchants Bank to conduct "due diligence" regarding the conditions and prospects of F&M, were advised in a letter from F&M as to F&M's desires with respect to each institution submitting an offer containing the essential terms and conditions of an acquisition. Of the four interested parties who received a letter from F&M to such effect, all four submitted offers by the May 1 deadline. Following receipt of the four offers, the Research Committee proceeded to analyze the offers. The Research Committee decided to retain therecognized investment banking firm of David A. Noyes & Company, which possesses expertise with respect to valuation of banks and bank holding companies, for the purpose of having that firm share with the F&M Board its analysis of the offers from the perspective of the shareholders of F&M. David A. Noyes & Company independently prepared analyses of the offers. These analyses were reviewed by the Research Committee and then by the F&M Board at a meeting held May 17, 1995. Two of the four offers included a price expressed as a number of shares of the acquiring corporation to be received by the shareholders of F&M determined on the basis of the average trading price for the offeror's shares during a trading period preceding the closing date. Two other offers used a different approach to determining the number of shares to be exchanged for the 5,633 outstanding shares of F&M. The offer from Bancorp provided for the largest amount of consideration to be paid to shareholders of F&M, and provided for the highest equivalent dividend per share. The offer from Bancorp compared favorably to other offers under the other criteria set forth above. Accordingly, the Board authorized and directed the Research Committee (renamed the Merger Committee) to negotiate with Bancorp the terms and conditions of a definitive agreement and to submit any such definitive agreement to the F&M Board for its approval. On May 19, 1995, F&M and Bancorp signed a non-binding letter of intent to merge, which was announced in a news release shortly thereafter. As a matter of information to its shareholders, F&M mentioned the proposed transaction in the May 23, 1995 letter to F&M shareholders that transmitted the notice of the annual shareholders meeting held June 20, 1995 and the related proxy statement and form of proxy for such meeting. 18 26 Beginning in June 1995 and continuing for the next few months, F&M and Bancorp negotiated the terms and conditions of the definitive agreement. The Merger Committee and Board of Directors of F&M took action to retain the services of Professional Banking Services, Inc. ("PBS"), an investment banking firm, to provide a letter expressing its opinion as to the fairness to F&M's shareholders from a financial point of view of the terms of any definitive agreement (the "Fairness Opinion"). It was anticipated that the Fairness Opinion would be delivered subsequent to the execution of a definitive agreement and also after PBS had the opportunity to conduct a "due diligence" investigation of Bancorp. Nevertheless, PBS reviewed drafts of the definitive agreement and participated in related discussions and meetings, including the special meeting of the Board of Directors of F&M held August 30, 1995. At the August 30 Board meeting, the definitive agreement, entitled "Plan and Agreement of Merger" was discussed in detail. Having concluded that affiliating with Bancorp and executing and delivering the definitive agreement were in the best interests of F&M and its shareholders, the F&M Board of Directors unanimously approved the definitive agreement and authorized and directed William J. Gordon, as President of F&M, to execute and deliver it after certain conditions were met. Mr. Gordon did so on September 11, 1995. Opinion Of Financial Advisor To F&M PBS was engaged by F&M to advise the Board of Directors as to the fairness of the consideration, from a financial perspective, to be paid by Bancorp to shareholders as set forth in the Merger Agreement between Bancorp and F&M. PBS is a bank consulting firm with offices in Louisville, Nashville, Indianapolis, Washington, D.C. and Ocala, Florida. As part of its investment banking business, PBS is regularly engaged in reviewing the fairness of financial institution acquisition transactions from a financial perspective and in the valuation of financial institutions and other businesses and their securities in connection with mergers and acquisitions and for estate, settlementscorporate and other transactions. Neither PBS nor any of its affiliates has a materialpurposes. Hastings Financial selected AAI to act as Hastings Financial's financial interest in F&M or Bancorp. PBS was selected to advise the F&M Board of Directors based upon its familiarity with Indiana financial institutions and its knowledge of the financial industry as a whole. PBS performed certain analyses described below and discussed the range of values for F&M resulting from such analyses with the Board of Directors of F&Madvisor in connection with the Merger on the basis of its advice as to the fairness of the consideration to be paid by Bancorp. An oral Fairness Opinion ("Opinion") of PBS was deliveredreputation and qualifications in evaluating financial institutions. AAI has rendered a separate written opinion to the Board of Directors of F&M on August 30, 1995 at a special meetingHastings Financial to the effect that the terms of the BoardMerger are fair from a financial point of Directors.view to the shareholders of Hastings Financial as of the date of the opinion. AAI based its opinion upon, among other things: (1) a comparison of the financial statements and other financial information concerning Hastings Financial and First Financial set forth or incorporated by reference in this Proxy Statement-Prospectus; (2) certain other financial information concerning Hastings Financial, including, but not limited to, operating budgets, board of directors reports and loan loss reserve adequacy reports; (3) financial and share price data of Hastings Financial, First Financial, and comparable banking organizations; (4) the financial terms, to the extent publicly available, of certain comparable transactions; (5) the terms of certain other proposals received by Hastings Financial from other banking institutions; and (6) discussions with the management of Hastings Financial and First Financial. No limitations were imposed on the scope of AAI's investigation. AAI participated in the negotiation of the terms of the Merger Agreement and other related agreements associated with the Merger. The terms of the Merger Agreement, including the Merger Price, were negotiated by the boards of directors of Hastings Financial and First Financial, and their representatives, on an arm's-length basis. A copy of the Opinion, which includes a summary of the assumptions made and information analyzed in deriving the Fairness Opinion,fairness opinion is attached as Appendix CB to this Proxy Statement-Prospectus and should be read in its entirety. 19 27 In arriving at its Opinion, PBS reviewed certain publicly available business and financial information relating to F&M and Bancorp. PBS considered certain financial and stock market data of F&M and Bancorp, compared that data with similar data for certain other private and publicly-held bank holding companies which own Indiana financial institutions and considered the financial terms of certain other comparable Indiana commercial bank transactions that had recently been effected. PBS also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that it deemed relevant. In connection with its review, PBS did not independently verify the foregoing information and relied on such information as being complete and accurate in all material respects. PBS did not make an independent evaluation or appraisal of the assets of F&M or Bancorp. As part of preparing the Opinion, PBS performed a due diligence review of Bancorp and its affiliate banks. As part of the due diligence, PBS reviewed minutes of Board of Directors meetings beginning January 1994 through June 1995; audited financial statements for the years ended December 31, 1992, 1993 and 1994; 1995 First and Second Quarter Reports to Shareholders; management letters from independent auditors for 1992, 1993 and 1994 and management's responses thereto; operating policies; overdraft and past due reports; Uniform Bank Performance Reports; investment security holdings; listing of pending litigation; internal audit and loan review reports; and the corporate business plan. PBS also interviewed senior management of Bancorp regarding operations, performance and the future prospects of Bancorp. PBS compared the historical common stock market of financial institutions headquartered in Indiana to Bancorp. PBS reviewed and analyzed the historical performance of F&M and its wholly owned subsidiary, Farmers & Merchants, contained in: F&M Audited Financial Statements for the years ended April 30, 1995; Form FRY-9SP as filed by F&M with the Federal Reserve as of June 30, 1995; the June 30, 1995 Consolidated Reports of Condition and Income filed with the FDIC by Farmers & Merchants; and the December 31, 1994 and March 31, 1995 Uniform Bank Performance Reports of Farmers & Merchants. PBS also reviewed and analyzed the historical common stock trading activity of F&M and the premises and other fixed assets. PBS reviewed and tabulated statistical data regarding the loan portfolio, securities portfolio and other performance ratios and statistics. Financial projections were analyzed as well as other financial studies, analyses and investigations as deemed relevant for the purposes of this Opinion. In review of the aforementioned information, PBS took into account its assessment of general market and financial conditions, its experience in other transactions and its knowledge of the banking industry generally. In connection with rendering the Opinion and preparing its various written and oral presentations to F&M's Board of Directors, PBSopinion, AAI performed a variety of financial analyses, including thosewhich are summarized below. The summary set forth below does not purport to be a complete description of theAAI believes its analyses performed by PBS in this regard. The preparation of an Opinion involves various determinations as to the most appropriate and relevant methods of financial analyses and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary 20 28 description. Accordingly, notwithstanding the separate factors summarized below, PBS believes that its analysis must be considered as a whole and that selecting portions of itssuch analyses and of the factors considered by it,therein, without considering all analysesfactors and factors,analyses, could create an incomplete view of the evaluationanalyses and the process underlying itsAAI's opinion. The preparation of a fairness opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analyses or summary description. In performing its analyses, PBSAAI made numerous assumptions with respect to industry performance, business and economic conditions, and other matters, many of which are beyond F&M'sHastings Financial's or Bancorp'sFirst Financial's control. TheAny estimates contained in AAI's analyses performed by PBS are not necessarily indicative of actual values or future results or values, which may be significantly more or less favorable than suggested by such analysis. In addition, analyses relatingthe estimates. PRELIMINARY APPRAISAL OF HASTINGS FINANCIAL. AAI completed a preliminary appraisal of Hastings Financial which was presented to the valuesBoard of businesses do not purportDirectors of Hastings Financial in February of 1996. AAI estimated that a reasonable sale of control value for Hastings Financial would range between $8.8 and $9.1 million, or approximately $116-$120 per share. THE PROCESS FOR SOLICITING INDICATIONS OF INTEREST FROM OTHER BANKING COMPANIES. Through AAI, Hastings Financial contacted 24 commercial banking organizations, that were selected by the Hastings Financial Board of Directors after consultation with AAI, to be appraisals norassess their interest in acquiring Hastings Financial. Of the 24 organizations contacted, 17 requested confidential information packages which provided detailed information regarding the business and operations of Hastings Financial. AAI pursued discussions with each organization that had requested the confidential information. Eventually 11 organizations submitted proposals to reflectacquire Hastings Financial. The Hastings Financial Board of Directors selected the process by which businesses actually may be sold. ACQUISITION COMPARISONFirst Financial proposal after extensive deliberation and negotiation. COMPARATIVE PRICE ANALYSIS. In performing this analysis, PBSdetermining whether the price offered by First Financial for Hastings Financial was fair, from a financial point of view, to the shareholders of Hastings Financial, AAI reviewed 171 Indiana bank acquisitiona comparison of prices paid in sale of control transactions in Michigan for banks having assets of up to $150 million. AAI looked specifically at ten transactions announced since 1985.between 1993 and 1996 involving Michigan-based sellers. The purpose of the analysis wasten transactions had an average price to obtain an evaluation range based on these Indiana acquisition transactions. Multiples of earnings and book value implied by the comparable transactions were utilized in obtainingratio of 169% and a range for the acquisition valueprice to earnings multiple of F&M. In addition to reviewing recent Indiana bank transactions, PBS performed separate comparable analyses for acquisitions of Indiana banks which, like F&M, had an equity-to-asset ratio above 11%, those located in non-MSA areas and those with deposits between $25 and $75 million. Values for the 171 Indiana bank acquisitions expressed as multiples of both book value and earnings were 1.45x and 14.42x, respectively.21.6. The median multiples were 154% of book value and earnings for acquisitions of Indiana banks with equity-to-asset ratios above 11% were 1.41x and 15.52x, respectively.15.8 times earnings. The median multiples of book value and earnings for acquisitions of Indiana banks located in non-MSA areas were 1.40x and 13.89x, respectively. The median multiples of book value and earnings for those institutions with total deposits between $25 and $75 million were 1.42x and 13.12x, respectively. Themarket value of the transaction equals $2,219.07 per F&M common share. This represents a multiple of book value and a multiple of earnings, as of June 30, 1995, of 1.67x and 18.44x, respectively. ADJUSTED NET ASSET VALUE ANALYSIS. For analysis purposes only, PBS reviewed F&M's balance sheet data to determine the amount of material adjustments that would be required to stockholders' equity if F&M's assets were adjusted to market value. PBS determined that two adjustments were warranted. The investment securities portfolio had depreciation of approximately $374,000 after adjustment for income taxes. PBS also determined a value of the non-interest bearing deposits of approximately $1,847,000. The adjusted net asset value, as of June 30, 1995, was determined to be $1,593.11 per share of F&M's common stock. DISCOUNTED EARNINGS ANALYSIS. A dividend discount analysis was performed by PBS pursuant to which a range of stand-alone values of F&M was determined by adding (i) the present value of estimated future dividend streams that F&M could generate over a five-year period beginning in 1996 and ending in 2000, and (ii) the present value of the "terminal value" of F&M's common equity at the end of 2000. The "terminal value" of F&M's common equity at the end of the five-year period was determined by applying a multiple of 1.45 times the projected terminal year's book value. The 1.45 multiple represents the median price paid as a multiple of book value for all Indiana banks since 1989. 21 29 Dividend streams and terminal values were discounted to present values using a discount rate of 12%. This rate reflects assumptions regarding the required rate of return of holders or buyers of F&M Common Stock. The value of F&M, determined by adding the present value of the total cash flows, was $1,668.17 per F&M share. In addition, using the five-year projection as a base, a 20-year projection was prepared assuming an annual growth rate of 7% and a return on assets of 1.15% by year five and remaining at this level for the entire period, beginning in 2000. Dividends also were assumed to be 50% of income for all years. This long-term projection resulted in a value of $1,424.32 per F&M share. SPECIFIC ACQUISITION ANALYSIS. For analysis purposes only, PBS valued F&M based on an acquisition analysis assuming a "break-even" earnings scenario to an acquirer as to price, current interest rates and amortization of the premium paid. Based on this analysis, an acquiring institution would pay $1,750.58 per share of F&M Common Stock, assuming they were willing to accept no impact to their net income in the initial year. This analysis was based on a funding cost of 8% adjusted for taxes, amortization of the acquisition premium over 15 years and a projected earnings level for F&M of $678,000 in 1995. PRO FORMA MERGER ANALYSIS. PBS compared the historical performance of F&M to that of Bancorp and other regional bank holding companies. This included, among other things, a comparison of profitability, asset quality and capital adequacy measures. In addition, the contribution of each of F&M and Bancorp to the income statement and balance sheet of the pro forma combined company was analyzed. The effect of the affiliation on the historical and pro forma financial data of F&M, as well as the projected financial data prepared by PBS, was analyzed. F&M's historical financial data was compared to pro forma combined historical and projected earnings and book value per share as well as other measures of profitability, capital adequacy and asset quality. CONCLUSION. The Fairness Opinion is directed only to the question of whether the consideration to be received by F&M'sHastings Financial shareholders underin the Merger is fixed at $10.0 million, subject to certain adjustments, which approximates 189% of Hastings Financial's book value at June 30, 1996, and 16.0 times Hastings Financial's consolidated net income for the 12 months ended June 30, 1996. 20 28 CONTRIBUTION ANALYSIS. AAI compared the pro forma ownership interest in First Financial that Hastings Financial shareholders would receive, in the aggregate, to the contribution by Hastings Financial to the total assets, equity and net income in the combined organization. Assuming a June 30, 1996 Closing date for the Merger, Hastings Financial shareholders would own approximately 2.24% of First Financial on a pro forma basis. Hastings Financial's contribution of total assets would equal 2.11%, the contribution of total equity would equal 2.08%, and the contribution of year-to-date 1996 net income would have equaled 1.95%. DILUTION ANALYSIS. AAI also reviewed the pro forma effect of the Merger to Hastings Financial's and First Financial's earnings per share and book value per share. Hastings Financial recorded earnings per share of $4.41 and a book value of $66.45 per share as of June 30, 1996. Giving effect to the Merger through June 30, 1996, the equivalent Hastings Financial earnings per share would have equaled $4.86, an increase of 10.20% over actual results. Book value per share would have increased to $70.80 per share, an increase of 6.55% over the actual book value of $66.45. Giving effect to the Merger, First Financial's book value per share would have been diluted by $0.04 or 0.22% and earnings per share would have been diluted by $0.01 or 0.78%. DIVIDENDS. AAI reviewed the current cash dividends paid by Hastings Financial and First Financial. Based on an exchange ratio of 3.815950 First Financial shares for each of Hastings Financial, equivalent dividends to Hastings Financial shareholders would have been $4.12 per share in 1995, an 83% increase over actual dividends received by Hastings Financial shareholders. For the first six months of 1996 equivalent dividends to Hastings Financial shareholders would have been $2.29 per share, also representing an 83% increase over actual dividends received. The summary set forth above does not purport to be a complete description of the analyses performed by AAI. Further, AAI did not conduct a physical inspection of any of the properties or assets of Hastings Financial or First Financial. AAI has assumed and relied upon the accuracy and completeness of the financial and other information provided to it or publicly available, has relied upon the representations and warranties of Hastings Financial and First Financial made pursuant to the Merger Agreement, is fair and equitable fromhas not independently attempted to verify any of such information. AAI has also assumed that the conditions to the Merger as set forth in the Merger Agreement would be satisfied and that the Merger would be consummated on a financial perspective and does not constitute a recommendation to any F&M shareholder to votetimely basis in favor ofthe manner contemplated by the Merger Agreement. No limitations were imposed by Hastings Financial or First Financial upon AAI on PBS regarding the scope of its investigation or otherwise by F&M or Bancorp ornor were any of its affiliates. Based on the results of the various analyses described above, PBS concluded that the considerationspecific instructions given to be received by F&M shareholders under the Merger Agreement is fair and equitable from a financial perspective to the shareholders of F&M. PBS will receive a fee not to exceed $15,000 from F&M for all of its services performedAAI in connection with renderingits fairness opinion. For AAI's services as financial advisor, Hastings Financial will pay the Opinion.firm a fee of $15,000, plus a contingent amount equal to 1.0% of the transaction value when the Merger is consummated. Hastings Financial estimates that total fees under this arrangement will be $115,000. In addition, F&MHastings Financial has agreed to reimburse AAI for reasonable out-of-pocket expenses and indemnify PBS and its directors, officers and employees from liability in connectionAAI against certain liabilities, including liabilities under the securities laws. AAI has no other material relationship with the Merger and to hold PBS harmless from any losses, actions, claims, damages, expenses or liabilities related to any of PBS's actsthe parties to the merger or decisions made in good faith and in the best interest of F&M. 22their affiliates. 21 3029 Structure Of The Merger - ----------------------- If the Merger is approved by F&MHastings Financial shareholders at the Special Meeting by at least a 75% majority vote of the outstanding shares of F&MHastings Financial Common Stock and if necessary regulatory approvals are received and certain other conditions to the consummation of the transactions contemplated by the Merger Agreement are satisfied or waived, prior to April 1, 1996, F&MHastings Financial will merge with Bancorpand into First Financial in a transaction in which the following will occur at the Effective Time: (a) AllEach of the then outstanding shares of F&MHastings Financial will be canceled and extinguished in consideration and exchange for a number of shares of BancorpFirst Financial Common Stock determined by dividing $12,500,000 byequal to the Average Price.Exchange Ratio; (b) F&MHastings Financial will merge with and into BancorpFirst Financial at the Effective Time and BancorpFirst Financial will be the continuing, surviving and resulting corporation in the Merger.Merger; and (c) Farmers & MerchantsNational Bank of Hastings will merge with and into Indiana Lawrence,become a wholly owned subsidiary of Bancorp, and Indiana Lawrence will be the continuing, surviving and resulting corporation in the Subsidiary Merger. Deliverable Shares The Deliverable Shares to which F&M shareholders shall be entitled as a result of the Merger shall be determined by dividing $12,500,000 by the Average Price. In the event of the subdivision or split of the outstanding Bancorp shares, the payment of a dividend in Bancorp shares or a capital reorganization affecting the closing price for Bancorp shares during some but not all of said trading days, the number of Deliverable Shares will be adjusted proportionately so that the holders of outstanding F&M shares shall receive the number of Bancorp shares that represents the same percentage of the value of outstanding Bancorp shares at the Effective Time as would have been represented by the number of shares such shareholders would have received if the event had not occurred. Each holder of F&M shares shall be entitled to a portion of the Deliverable Shares that is equal to the number of Deliverable Shares multiplied by a fraction, the numerator of which is the number of F&M shares held by that shareholder immediately prior to the Effective Time and the denominator of which is the number of F&M shares outstanding immediately prior to the Effective Time. 23 31First Financial. Surrender Of Stock Certificates Prior to- ------------------------------- The Merger Agreement provides for the Effective Time, Bancorp andsurrender of Hastings Financial Common Stock certificates by the holders thereof before such holders may receive certificates evidencing First Financial Common Stock. First National Bank of Southwestern Ohio, (the "Exchange Agent"),Butler County, Ohio, a wholly owned subsidiary of Bancorp, shall enter into an Exchange AgentFirst Financial, will act as the exchange agent (the "Exchange Agent"). Approval of the Merger Agreement with respect toby Hastings Financial shareholders will constitute ratification of the Deliverable Shares, which Agreement shall be subject to F&M's approval which shall not be unreasonably withheld. The Exchange Agent Agreement shall require Bancorp to deliverselection of First National Bank of Southwestern Ohio as the Deliverable Shares to the Exchange Agent at the Effective Time.exchange agent. As promptlysoon as practicable after the Effective Time, the Exchange Agent shall prepare and mail to each holder of record of an outstanding certificate or certificates representing shares of F&MHastings Financial a letter of transmittal containing instructions for the surrender of the certificate or certificates. Upon surrender of the F&MHastings Financial certificate or certificates in accordance with instructions set forth in the letter of transmittal, such holder shall be entitled to receive in exchange therefor certificates representing the number of whole shares of BancorpFirst Financial into which the shares represented by the certificate or certificates so surrendered shall have been converted, without interest. As part of its services, the Exchange Agent shall make itself available for at least three business days during regular banking hours at the main office of Farmers & Merchants to accept and provide receipts for surrendered certificates. Approval of the Exchange Agent Agreement by F&M and approval of the Merger Agreement by the shareholders of F&M shall constitute ratification of the appointment of First National Bank of Southwestern Ohio as the Exchange Agent for this purpose.22 30 The Exchange Agent shall not be obligated to deliver certificates for BancorpFirst Financial Common Stock to a former shareholder of F&MHastings Financial until such former shareholder surrenders his or her certificate or certificates representing shares of F&MHastings Financial or, in lieu thereof, an appropriate affidavit of loss and an indemnity agreement or bond as may be required by Bancorp.First Financial. Until so surrendered for exchange, each such stock certificate formerly representing shares of F&MHastings Financial Common Stock will be deemed for all corporate purposes (except for the payment of dividends, which will be subject to the exchange of stock certificates as above provided) to evidence the ownership of the number of shares of common stock of the surviving corporation that the holder thereof would be entitled to receive upon its surrender to Bancorp.First Financial. Fractional Interests - -------------------- No fractional shares of BancorpFirst Financial Common Stock will be issued as a result of the Merger. In lieu thereof, F&MHastings Financial shareholders having a fractional interest will be paid in cash by BancorpFirst Financial for the fractional interest. Such payment shall be equal to the fractional interest timesmultiplied by the Average Price.Exchange Ratio. Effective Time Of The Merger - ---------------------------- The Effective Time is expected to be as soon as practicable after the approval of the Merger Agreement by F&MHastings Financial shareholders, the satisfaction of all conditions set forth in the Merger Agreement and the receipt of approvals from regulatory authorities, or at such later date as may be agreed upon by F&MHastings Financial and Bancorp.First Financial. See "DESCRIPTION OF THE MERGER--RegulatoryMERGER-- Regulatory Considerations". 24 32 No assurance can be provided that the necessary shareholder and regulatory approvals will be obtained or that other conditions precedent to the Merger will be satisfied. It is anticipated that the Merger will be consummated in the first quarter of 1996.on January 1, 1997. In the event the Merger is not consummated byon or before April 1, 1996,30, 1997, either party may terminate the Merger Agreement or the parties may agree to extend the time for completion of the Merger. Conditions To Consummation Of The Merger - ---------------------------------------- Consummation of the Merger is subject to a number of conditions, each of which may be waived by the party entitled thereto to the extent permissible by applicable law, including the following: (a) The receipt of all required regulatory approvals for the completion of the Merger and the expiration of any applicable waiting periods, with no such approval or authorization containing any provision which would be materially adverse to the merged businesses of F&MHastings Financial and Bancorp;First Financial; 23 31 (b) The validity or legality of the transactions contemplated by the Merger Agreement shall not have been materially questioned by any suit, action, investigation by any governmental body or other legal or administrative proceedings; (c) The receipt of all consents required for the consummation of the Merger or for the prevention of any default under any contract, agreement or permit of BancorpFirst Financial or F&MHastings Financial which, if not obtained or made, is reasonably likely to have, individually or in the aggregate, a material adverse effect on the combined business affairs of BancorpFirst Financial and F&M;Hastings Financial; (d) Compliance by BancorpFirst Financial and F&MHastings Financial with their respective covenants and the truth of all representations and warranties as of the Effective Time; (e) The absence of any material adverse change in the financial condition, operations, corporate status or business of BancorpFirst Financial or Hastings Financial since December 31, 1994 or F&M since April 30, 1995; (f) The receipt of opinions from Bancorp'sFirst Financial's special counsel and from F&M'sHastings Financial's special counsel with respect to various corporate matters, due execution and delivery of the Merger Agreement and various other Merger related matters; (g) The receipt of an opinion of counsel, in form and substance satisfactory to BancorpFirst Financial and F&M,Hastings Financial, to the effect that, under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), no taxable gain or loss will be recognized by F&M, BancorpHastings Financial, First Financial or their respective shareholders as a result of the Merger, (exceptexcept in respect of fractional share interests sold); 25 33interests; (h) The receipt of letters from Bancorp'sFirst Financial's independent accountants stating that they are not aware of any reason that BancorpFirst Financial is not in compliance with certain pooling-of-interests criteria and that the Merger can be accounted for as a pooling-of-interests from Bancorp'sFirst Financial's perspective and the receipt of similar letters from F&M'sHastings Financial's independent accountants; (i) The receipt by BancorpFirst Financial of a satisfactory Phase I Environmental Site Assessment of the real estate owned or leased by F&MHastings Financial or, if such assessment is not satisfactory to Bancorp, F&MFirst Financial, Hastings Financial and BancorpFirst Financial shall have reached agreement as to the remedial actions necessary to correct any unsatisfactory conditions; and (j) The approval of the Merger Agreement by F&MHastings Financial shareholders at the Special Meeting by at least a 75% majority vote of the outstanding F&M shares; and (k) The receipt by F&M of an opinion from Professional Bank Services, Inc. that the value and number of Deliverable Shares to be received by the F&M shareholders pursuant to the Merger Agreement is fair to the F&M shareholders from a financial point of view.Hastings Financial shares. 24 32 No assurance can be given that all of the conditions to the Merger will be satisfied or waived by any party permitted to do so. Termination Of The Merger - ------------------------- The Merger may be terminated at any time prior to the Effective Time under any one or more of the following circumstances: (a) By the mutual consent of the Boards of Directors of F&MHastings Financial and Bancorp;First Financial; (b) By BancorpFirst Financial if the holders of 10.0%2.00% or more of the outstanding shares of F&MHastings Financial Common Stock immediately prior to the Effective Time will be entitled to receive cash in exchange for their F&MHastings Financial shares pursuant to perfected dissenters' rights under the IndianaMichigan Business Corporation Law;Act; (c) By F&MHastings Financial or BancorpFirst Financial if, prior to the Effective Time, the conditions to such party's obligation to consummate the Merger are not met; (d) By either F&MHastings Financial or BancorpFirst Financial if the requisite approval of the shareholders of F&MHastings Financial is not obtained or if the Merger is not consummated on or before April 1, 1996; and30, 1997; or (e) By BancorpFirst Financial if the Average Price is less than $28.48$27.625 or by F&MHastings Financial if the Average Price is greater than $38.53,$37.375, (in either case, as may be adjusted by the declaration of a stock dividend, stock split or other such recapitalization). 26 34 Management Following The Merger - ------------------------------- If the Merger is consummated, F&MHastings Financial and BancorpFirst Financial will merge into a single corporation and BancorpFirst Financial will be the surviving corporation. The directors of BancorpFirst Financial at the Effective Time of the Merger will be the directors of the surviving corporation until their respective successors are duly elected and qualified. Subject to the authority of the Board of Directors as provided by law and the Regulations of the surviving corporation, the officers of BancorpFirst Financial at the Effective Time will be the officers of the Surviving Corporation. If the Merger is consummated, Farmers & Merchants, F&M'sNational Bank of Hastings, Hastings Financial's only subsidiary, will merge with and into Indiana Lawrence,become a wholly owned subsidiary of Bancorp, and Indiana Lawrence will be the surviving bank.First Financial. The directors of Indiana LawrenceNational Bank of Hastings at the Effective Time of the Merger will continue to be directors of the surviving bank until their respective successors are duly elected and qualified.qualified by First Financial as sole shareholder. Subject to the authority of the Board of Directors of Indiana LawrenceNational Bank of Hastings as provided by its By-Laws and as provided by law, and the By-Laws of the surviving bank, the officers of Indiana LawrenceNational Bank of Hastings at the Effective Time will continue to be the officers of National Bank of Hastings until their successors are duly elected and qualified. 25 33 As part of the surviving bank.terms of the Merger Agreement, Larry J. Kornstadt has agreed to remain in his current positions of President, CEO and Chairman of the Board of National Bank of Hastings for a period of six months following the Effective Time. Upon his retirement from the positions of President and CEO, Mr. Kornstadt will remain as Chairman of the Board of National Bank of Hastings for so long as mutually agreed to by Mr. Kornstadt and First Financial. Interest Of Certain Persons In The Merger - ----------------------------------------- The directors and officers of F&MHastings Financial and Farmers & MerchantsNational Bank of Hastings have certain interests in the Merger in addition to their interests as shareholders of F&MHastings Financial generally. The Board of Directors of F&MHastings Financial was aware of these interests and considered them, among others, in approving the Merger Agreement. If the Merger is consummated, Bancorp shall itself employ or cause Indiana Lawrence or another of its affiliates to employ, for at least a period of two years after the Effective Time, those persons who are employees of Farmers & Merchants immediately prior to the Effective Time, except for voluntary or just-cause terminations. The compensation to be paid to former Farmers & Merchants employees during such two year period shall be reviewed, but not reduced, in accordance with the "Indiana Lawrence Bank Pay System Documentation and Review Procedures" in effect as of September 11, 1995. The Merger Agreement contains certain provisions regarding employee benefits. IfAs soon as practicable after the Effective Date of the Merger, is consummated, Bancorp and Indiana LawrenceFirst Financial will make available to theeligible employees and officers of Farmers & Merchants who continue employment after the Merger and the Subsidiary MergerNational Bank of Hastings the same nonqualified employee benefits on the same terms and conditions that are offeredbenefit plans as then made available to similarly situated employees of Indiana Lawrence. 27 35other First Financial subsidiaries. Nonqualified employee benefit plans, fringe benefits and other employee practices and policies in effect at National Bank of Hastings immediately prior to the Effective Time will continue in effect until modified or terminated by First Financial. The First Financial Bancorp Thrift Plan (the "Thrift Plan"), which is a 401-K Plan, and the First Financial Bancorp Employees' Pension Plan (the "Pension"First Financial Pension Plan") cover the majority of the employees of BancorpFirst Financial and its subsidiaries. All employees who are 21 years of age and have completed one year of service are covered. The Thrift Plan is voluntary and participants may contribute up to 12.0% of base salary to the plan. Subject to the limitation described below, BancorpFirst Financial subsidiaries contribute $0.50 for each $1.00 a participant contributes. The matching contribution by BancorpFirst Financial subsidiaries is limited to 3.00% of each participant's base salary and all contributions become fully vested when made. Participants are 100% vested in the Pension Plan after five years of credited service. For more information about Bancorp'sFirst Financial's Thrift Plan and Pension Plan, see Bancorp'sFirst Financial's Annual Report on Form 10-K for the fiscal year ended December 31, 1994,1995, previously incorporated by reference. Years of service of an employee of Farmers & Merchants prior to the Effective TimeThe Pension Plan of the MergerNational Bank of Hastings (the "Hastings Pension Plan") will be credited to such employee for purposes of eligibility and vesting, but not for purposes of benefit accrual or contributions, under the Thrift Plan and the Pension Plan. Farmers & Merchants employees who satisfy the applicable eligibility requirements under the Pension Plan will be eligible to participate immediately in themerged into First Financial's Pension Plan as of the Effective Time. Farmers & Merchants employees who satisfyTime of the applicable eligibility requirementsMerger. If a First Financial Pension Plan participant was a Hastings Pension Plan participant immediately prior to the Effective Time, such participant's accrued benefit under the ThriftFirst Financial Pension Plan will be eligibleconsist of a past service benefit equal to participatethe accrued benefit under the Hastings Pension Plan immediately prior to the Effective Time plus a future service benefit based upon the participant's service after the Effective Time with the companies participating in the ThriftFirst Financial Pension Plan. Service with National Bank of Hastings prior the Effective Time will be counted for eligibility and vesting purposes only under the First Financial Pension Plan. 26 34 The National Bank of Hastings 401(k) Employee Savings Plan on(the "Hastings Savings Plan") will continue in effect until the first entry date, either January 1 or July 1 coinciding with or next following the Effective Time. The Farmers and Merchants Bank Retirement Plan and TrustTime (the "Retirement Plan""Initial Entry Date") will be terminated as soon as practicable after the Effective Time in a manner which will assure its tax-qualified status upon termination. In the event the Effective Time occurs prior to the date. As of the required contribution to the Retirement Plan, Bancorp or Indiana Lawrence will assume responsibility for this contribution as well as for any pro-rata contribution requirements for the period from December 31, 1995 to the Effective Time. Such contributions, if required, shall be made before terminationInitial Entry Date, National Bank of the RetirementHastings employees and officers may participate in First Financial's Thrift Plan. Upon terminationService with National Bank of the Retirement Plan, provisions will be made for the distribution of each participant's account in accordance with the terms of the Retirement Plan, the Internal Revenue Code, and the Employee Retirement Income Security Act of 1974 ("ERISA"). Years of service of an employee of Farmers & MerchantsHastings prior to the Effective Time will also be creditedcounted for eligibility purposes under the Thrift Plan. After the Initial Entry Date, the Hastings Savings Plan may be maintained as a frozen plan for an indefinite period or it may be merged into the Thrift Plan. No contributions will be made to the Hastings Savings Plan with respect to compensation paid after the Initial Entry Date and the accounts of all participants in such plan will become fully vested and nonforfeitable on the Initial Entry Date. National Bank of Hastings has entered into a Deferred Compensation and Non-Compete Agreement with Larry J. Kornstadt, Chairman of the Board, President and CEO, and into Selective Retirement Plan agreements with six employees of the bank. The Merger Agreement provides that First Financial will honor these agreements. National Bank of Hastings entered into the Deferred Compensation and Non-Compete Agreement with Mr. Kornstadt on January 13, 1992. The Deferred Compensation and Non-Compete Agreement provides that while he is employed by National Bank of Hastings and for a period of five years after termination of his employment, Mr. Kornstadt may not render the services or make the investments listed below in a business entity engaged in a business determined by National Bank of Hastings Board of Directors to be in competition with National Bank of Hastings or any of its affiliates: (a) become an owner, director, employee, agent or independent contractor of such business; (b) render advisory or other services for such business; or (c) make a financial investment, except for purchases solely for investment purposes of determining eligibilitynot more than 2.00% of stock or securities outstanding, in such business. The Deferred Compensation and Non-Compete Agreement also provides that, upon the earlier of Mr. Kornstadt's retirement, 58th birthday, death or disability or upon National Bank of Hastings' termination of his employment without good cause, National Bank of Hastings will immediately pay Mr. Kornstadt $24,000 and an additional $24,000 on the same day of each year thereafter for all other employee benefits offereda period of four years. In the event of Mr. Kornstadt's death, the payments will be made to Indiana Lawrence employees, including but not limited to group health coverage, group term life and accidental death and dismemberment coverage, and short-term and long-term disability coverage. Farmers and Merchants employees who satisfy the applicable eligibility requirements to participate in said other employee benefits shall be eligible to participate immediately therein ashis spouse, if she survives him. National Bank of the Effective Time. If any employee of Farmers & Merchants who continues employment with Indiana Lawrence is subject to any pre-existing conditions exclusions or limitations under the group health plan for employees of Indiana Lawrence, Bancorp or Indiana Lawrence will either obtain other health insurance coverage or self-insure such employee so that the employees' health coverageHastings is not substantially more or less advantageous thanrequired to continue payments after the death of Mr. Kornstadt and the death of his spouse. If Mr. Kornstadt fails to observe the terms of the group health plan. 28agreement, no further payments will be due and National Bank of Hastings will have no further liability under the terms of the agreement. 27 3635 The Selective Retirement Plans provide that, upon retirement at specified ages, National Bank of Hastings will make supplementary monthly payments for a period of not more than 120 months to the specified employee or to the employee's surviving spouse if the employee should die before collecting all the payments. If the employee should die before retirement, the employee's spouse will begin receiving monthly payments immediately. The Selective Retirement Plans also include a noncompete agreement ending ten years after the employee's retirement date. If employment is terminated prior to retirement, the benefits under the Selective Retirement Plan will be forfeited. Mr. Kornstadt is one of the six employees covered by a Selective Retirement Plan. Four of the six employees have retired and are currently receiving monthly payments. The directors and executive officers of F&MHastings Financial have indicated their intention to vote the shares of F&MHastings Financial Common Stock held by them in favor of the Merger Agreement. On the Record Date, such directors and executive officers as a group beneficially owned an aggregate of 3,02141,110 shares of F&MHastings Financial Common Stock, which represented 53.63%51.09% of the shares issued and outstanding at that date. Shareholders'Dissenters' Rights Of Appraisal Under Indiana Code Chapter 23-1-44, any- ------------------ Each holder of record of F&MHastings Financial Common Stock onhas the Record Date who does not vote in favor ofright to dissent from the Merger may exercise dissenting shareholder rights and receive the fair value of such holder's shares by complying withof Hastings Financial Common Stock in cash if the requirements of Chapter 23-1-44. Set forth below is a summaryshareholder follows the procedures required under Sections 450.1761-450.1774 of the procedures relating toMichigan Business Corporation Act (the "MBCA") set forth in Appendix C, the exercisematerial provisions of statutory dissenters' rights ("Dissenters' Rights"). THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY EXPRESS REFERENCE TO APPLICABLE INDIANA LAW, INCLUDING INDIANA CODE CHAPTER 23-1-44, A COPY OF WHICH IS APPENDED AS APPENDIX C TO THIS PROXY STATEMENT-PROSPECTUS. Any shareholderwhich are summarized below. Under the MBCA, a holder of F&M contemplating exercising Dissenters' Rights with respect to F&MHastings Financial Common Stock is urgedmay dissent and First Financial will pay to review carefully such provisions and to consult an attorney, because Dissenters' Rights will be lostshareholder the fair value of such shareholder's shares of Hastings Financial Common Stock if the procedural requirements under Chapter 23-1-44 are not fully and precisely satisfied. Each step must be taken in strict compliancesuch shareholder (a) files with the applicable provisions of Chapter 23-1- 44 in order for holders to perfect Dissenters' Right. Under Chapter 23-1-44, a shareholder of record on the record date for the Special Meeting who desires to assert Dissenters' Rights must (1) deliver to F&MHastings Financial, before the shareholder vote is taken, written notice of the shareholder's intent to demand payment for his or her shares if the Merger is effectuated and (2)(b) does not vote the shareholder's shares in favor of the Merger. A shareholder's failure to vote against the Merger will not constitute a waiver of that shareholder's Dissenters' Rights. BECAUSE A PROXY WHICH DOES NOT CONTAIN VOTING INSTRUCTIONS WILL, UNLESS REVOKED, BE VOTED FOR ADOPTION OF THE MERGER AGREEMENT, A HOLDER OF F&MHASTINGS FINANCIAL SHARES WHO VOTES BY PROXY AND WHO WISHES TO EXERCISE HIS/HIS OR HER DISSENTERS' RIGHTS MUST (i)(I) VOTE AGAINST, OR (ii)(II) ABSTAIN FROM VOTING ON SUCH APPROVAL AND ADOPTION. For purposes of Chapter 23-1-44,Sections 450.1762-450.1774, the fair value of a dissenting shareholder's shares is the value of the shares immediately before the effectuation of the Merger, excluding any appreciation or depreciation in anticipation of the Merger unless the exclusion would be inequitable. Within28 36 If the Merger is approved at the Hastings Financial Special Meeting of Shareholders, First Financial will deliver written dissenters' notice to those Hastings Financial shareholders who complied with the notice requirements. This dissenters' notice will be sent no later than ten days after the approvalEffective Time of the Merger by the shareholders, F&M or Bancorp as the surviving corporation (hereinafter referred to for purposes of this section as the "Corporation") must mail or deliver written notice to each dissenting shareholder, whichMerger. The dissenters' notice must: (1)will (a) state where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3)deposited, (b) supply a form for demanding payment that includes the date of the first announcement to the news media or to shareholders of the terms of the proposed Merger and requires that the dissenting shareholder certify whether or not he or she acquired beneficial ownership of the shares before that date; (4)such date and (c) set a date 29 37 by which the Corporationpayment demand must receive the payment demand,be received, which date may be not be fewer than thirtyless that 30 nor more than sixty60 days after the date the dissenters' notice is delivered; and (5) be accompanied by a copy of Indiana Code Chapter 23-1-44.was delivered to shareholders. A shareholder who sent a dissenters' notice as described above, must demand payment, certify whether the shareholderhe or she acquired beneficial ownership of the sharesHastings Financial Common Stock before the date required to be set forth in the dissenters' notice and deposit the shareholder'shis or her certificates in accordance with the terms of the notice. Hastings Financial shareholders who do not demand payment or deposit certificates within the time set forth in the dissenters' notice. IF THE SHAREHOLDER FAILS TO TAKE THESE STEPS, HE OR SHE WILL NOT BE ENTITLED TO PAYMENT FOR THE SHAREHOLDER'S SHARES AND WILL BE CONSIDERED TO HAVE VOTED HIS OR HER SHARES IN FAVOR OF THE MERGER. Following effectuationnotice lose all rights to payment for their Hastings Financial Common Stock under the provisions of Sections 450.1762-450.1774. Except for "after-acquired" shares, which are discussed below, within seven days after the Merger, the CorporationEffective Time or receipt of a payment demand, whichever is later, First Financial will pay each shareholder who filed a payment demand with the Corporationdissenter the amount that the CorporationFirst Financial estimates to be the fair value of the dissenting shareholder's shares. Ifshares plus accrued interest. The payment will be accompanied by (a) Hastings Financial's balance sheet as of the dissentingmost recent fiscal year end, an income statement and a statement of changes in shareholders' equity for that year plus the latest available interim financial statements; (b) First Financial's estimate of the fair value of the Hastings Financial Common Stock; (c) an explanation of how interest was calculated; and (d) a statement of the dissenter's right to make a supplemental demand for payment if the shareholder believes that the amount paid by the Corporation is less than the fair value forof his or her shares or ifthat the Corporation fails to make payment to the dissenting shareholder within sixty daysinterest due is incorrectly calculated. Hastings Financial Common Stock acquired after the date setof the first announcement to the news media or Hastings Financial shareholders of the terms of the Merger still qualify for demandingdissenters' rights, but the holder of these shares may receive different and somewhat less favorable treatment than those shares acquired before such announcements. First Financial, at its election, may withhold payment from a dissenter who holds "after acquired" shares, at a time when payment to other shareholders is required. Should First Financial elect to withhold payment, First Financial, after the dissentingEffective Time, will estimate the fair value of the dissenter's shares plus interest and offer to pay this amount to each dissenter who agrees to accept it in full satisfaction. Along with its offer, First Financial will send a statement of its estimate of the fair value of the shares, an explanation of how interest was calculated and a statement of the dissenter's right to make a supplemental demand for payment if the shareholder maybelieves that the amount offered is less than the fair value of his or her shares or that the interest due is incorrectly calculated. 29 37 In the event a shareholder believes the payment received, or the amount offered in the case of after-acquired shares, is less than the fair value of his or her shares or that the interest due is incorrectly calculated, he or she must notify the CorporationFirst Financial in writing of his or her own estimate of the fair value of the shares and interest due and make a supplemental demand for payment of the amount he or she believes to be owing. This right is waived unless the dissenter makes his or her shares and demand within 30 days after First Financial made or offered payment offor his or her estimate. Such a demand for payment must be made in writing within thirty days after the Corporation has made payment for the dissenting shareholder's shares. A dissenter who fails to make the demand waives his or her right to demand payment. If a supplemental demand for payment remains unsettled, the Corporation mustFirst Financial shall commence a proceeding in the circuit or superior court of Fulton County within sixty60 days after receiving the payment demand and petition the circuit court of Barry County to determine the fair value of the shares. If the Corporation failsand accrued interest. Should First Financial fail to commence the proceeding within the sixty day period,do so, it must pay each dissenter whose demand remains unsettled the amount demanded. The Corporation must make all dissenters whose demands remain unsettled parties to the proceeding and all parties must be served a copy of the petition. The court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. Each dissenting shareholderdissenter made a party to the proceeding is entitled to judgment for the amount if any, by which the court finds thedetermined fair value of the dissenters' shares plus interest exceeds the amount paid by First Financial or, in the Corporation. The court in an appraisal proceeding shall determine all costscase of after-acquired shares for which payment was not made, the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess these costs and the fees and expenses of counsel and experts for the respective parties against the parties in amounts the court finds equitable. Every shareholder who does not deliver a notice of intent to demand payment for his or her shares as aforesaid, or who votes in favor of the Merger, is bound by the vote of the assenting shareholders and will have no right to the paymenttotal amount of the fair value of his or her shares as a result of the Merger. Voting against the Merger does not in itself constitute the notice of intent to demand payment required by Indiana Code Chapter 23-1-44. 30 38plus interest. A PROXY OR VOTE AGAINST THE MERGER WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN OBJECTION FOR PURPOSES OF ASSERTING DISSENTERS' RIGHTS. THE ABOVE SUMMARY OF THE PROVISIONS REGARDING DISSENTERS' RIGHTS UNDER THE MBCA IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF SECTIONS 450.1761-450.1774 OF THE MBCA. THE TEST OF SECTIONS 450.1761-450.1774 IS ATTACHED HERETO AS APPENDIX C. SHAREHOLDERS OF HASTINGS FINANCIAL INTENDING TO EXERCISE DISSENTERS' RIGHTS ARE URGED TO SEEK THE ADVICE OF COUNSEL. FAILURE TO COMPLY WITH ALL REQUIREMENTS OF SECTIONS 450.1761-450.1774 OF THE MBCA WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. The Merger Agreement includes a provision that BancorpFirst Financial may terminate the Merger Agreement before the Merger becomes effective if the number of shares of F&MHastings Financial Common Stock for which Dissenters' Rights are perfected is 10%2.00% or more of the outstanding shares of F&MHastings Financial Common Stock. The Board of Directors of F&MHastings Financial has determined that the Merger is fair to and in the best interest of F&M'sHastings Financial's shareholders and has recommended that the F&MHastings Financial shareholders vote in favor of the Merger. 30 38 Federal Income Tax Consequences Of The Merger - --------------------------------------------- Assuming that (i) the Merger constitutes a reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code; (ii) after the transaction, Bancorp,First Financial, as successor of F&M,Hastings Financial, will hold substantially all of F&M'sHastings Financial's assets; and (iii) in the transaction, the F&MHastings Financial shareholders will exchange an amount of stock constituting control of F&MHastings Financial solely for BancorpFirst Financial Common Stock; the following is a summary of the tax consequences which will result: (1) No gain or loss will be recognized by F&MHastings Financial shareholders who exchange all of their F&MHastings Financial Common Stock for BancorpFirst Financial Common Stock pursuant to the Merger, except to the extent of any cash received in lieu of receipt of a fractional share of BancorpFirst Financial Common Stock. (2) The basis of the BancorpFirst Financial Common Stock (including fractional share interests) received by F&MHastings Financial shareholders who exchange all of their F&MHastings Financial Common Stock for BancorpFirst Financial Common Stock will be the same as the basis of the F&MHastings Financial Common Stock surrendered in exchange therefor. (3) The holding period of the BancorpFirst Financial Common Stock (including fractional share interests) received by F&MHastings Financial shareholders who exchange all of their F&MHastings Financial Common Stock for BancorpFirst Financial Common Stock will include the period during which the F&MHastings Financial Common Stock was held, provided the F&MHastings Financial Common Stock was held as a capital asset on the date of the exchange. (4) Where a cash payment is received by a F&MHastings Financial shareholder in lieu of fractional shares of BancorpFirst Financial Common Stock, the cash payment will be treated as a distribution in redemption of the fractional share interest by Bancorp,First Financial, subject to the provisions and limitations of Section 302 of the Internal Revenue Code. Where such exchange qualifies under Section 302(a) of the Internal Revenue Code, such shareholder will recognize a capital gain or loss provided that the F&MHastings Financial Common Stock was held as a capital asset on the date of the Merger. 31 39 (5) Any F&MHastings Financial shareholder who perfects dissenters' rights and receives solely cash in exchange for such shareholder's F&MHastings Financial Common Stock shall be treated as having received such cash as a distribution in redemption of the F&MHastings Financial Common Stock subject to the provisions and limitations of Section 302 of the Internal Revenue Code. Where, as a result of such distribution, such F&MHastings Financial shareholder owns no BancorpFirst Financial Common Stock, either directly or through the application of the constructive ownership rules of Section 318(a) of the Internal Revenue Code, the redemption will be a complete termination of interest within the meaning of Section 302(b)(3) of the Internal Revenue Code and the cash will be treated as a distribution in full 31 39 payment and exchange for F&MHastings Financial Common Stock as provided in Section 302(a) of the Internal Revenue Code. Gain or loss will be realized and recognized to such F&MHastings Financial shareholder in an amount equal to the difference between the redemption price and the adjusted basis of the F&MHastings Financial Common Stock surrendered in exchange therefor. (6) No gain or loss will be recognized by F&MHastings Financial or BancorpFirst Financial in connection with the transaction. Receipt of an opinion of tax counsel (the "Tax Opinion") with respect to the above is a condition precedent to consummation of the Merger. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON THE CODE, TREASURY REGULATIONS, CASE LAW AND INTERNAL REVENUE SERVICE RULINGS AS IN EFFECT ON THE DATE HEREOF WITHOUT CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF ANY PARTICULAR SITUATION OF ANY F&MHASTINGS FINANCIAL SHAREHOLDER. THIS DISCUSSION ASSUMES THAT F&MHASTINGS FINANCIAL SHAREHOLDERS HOLD THEIR F&MHASTINGS FINANCIAL COMMON STOCK AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF THE CODE. SPECIAL TAX CONSIDERATIONS NOT DISCUSSED HEREIN MAY BE APPLICABLE TO PARTICULAR CLASSES OF TAXPAYERS, SUCH AS BROKER-DEALERS, OR TO ANY SHAREHOLDER WHO ACQUIRED F&MHASTINGS FINANCIAL COMMON STOCK THROUGH THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION. EACH SHAREHOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF EXISTING AND PROPOSED FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. Accounting Treatment - -------------------- It is anticipated that the Merger will be accounted for as a pooling-of-interests. The receipt by BancorpFirst Financial of letters from its independent accountants stating that they are not aware of any reason that BancorpFirst Financial is not in compliance with the pooling-of-interests criteria and that the Merger can be accounted for as a pooling-of-interests from Bancorp'sFirst Financial's perspective and the receipt of similar letters from F&M'sHastings Financial's independent accountants is a condition precedent to the respective party's obligation to consummate the Merger. 32 40 Regulatory Considerations - ------------------------- The proposed transaction requires the approval of the Federal Reserve Board under section 3(a)(5) of the Bank Holding Company Act of 1956, as amended, and also requires the approval of the FDIC under Section 18(c) of the Federal Deposit Insurance Act.amended. The Bank Holding Company Act provides that the Federal Reserve Board may not approve any transaction which would result in a monopoly or which would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any part of the United States, or any transaction the effect of which in any section of the United States may be substantially to lessen competition or to tend to create a monopoly or which in any other manner might restrain trade, unless the Federal Reserve Board determines that the anti-competitive effects of the proposed merger are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. The same anticompetitive considerations regarding monopoly or lessening of competition are also provided for in the Federal Deposit Insurance Act. The Merger may generally not be consummated for fifteen days after the receipt of Federal Reserve Board approval and FDIC approval. Such fifteen day period will become thirty days, however, if the United States Department of Justice issues an adverse comment relating to competitive factors. During such fifteen or thirty day period, the United States Department of Justice may commence legal action challenging the Merger under the Federal Anti-trust Laws. If the Justice Department does not commence a legal action during such period, the Merger may be consummated and the Justice Department may not thereafter challenge the transaction except in an action commenced under Section 2 of the Sherman Anti-TrustAntiTrust Act. The Merger is also subject to approval by the Indiana Department of Financial Institutions under Chapter 28-2-16 of the Indiana Code, which provides for foreign bank holding company acquisitions, and under Chapter 28-1-7 of the Indiana Code, which provides for mergers of Indiana state banks. ApplicationsAn application requesting approval werewas submitted to the Federal Reserve Board on __________ __, 1995, to the FDIC on ___________ __, 1995____________ ___, 1996. First Financial and to the Indiana Department ofHastings Financial Institutions on _______ __, 1995. Bancorp and F&M anticipate that the Merger will be approved by the Federal Reserve Board the FDIC and the Indiana Department of Financial Institutions and will not be challenged by the Justice Department under the anti-trust laws. However, there can be no assurance that the Federal Reserve Board the FDIC, the Indiana Department of Financial Institutions and the Justice Department will concur in this assessment. 33 41 Pro Forma Unaudited Financial Information - ----------------------------------------- The following pro forma unaudited consolidated balance sheet as of SeptemberJune 30, 19951996 and the pro forma unaudited consolidated statements of earnings for the ninesix months ended SeptemberJune 30, 19951996 and 19941995 and the years ended December 31, 1995, 1994 1993 and 19921993 indicate the pro forma effects of the merger of F&MHastings Financial into BancorpFirst Financial and the issuance of shares of BancorpFirst Financial Common Stock in exchange for all of the outstanding F&MHastings Financial Common Stock using the pooling-of-interests method of accounting. Each share of F&MHastings Financial Common Stock will be canceled and extinguished in consideration and exchange for a number of shares of BancorpFirst Financial Common Stock equal to the Exchange Ratio. The pro forma information has been calculated assuming the issuance of 369,140301,887 shares of BancorpFirst Financial Common Stock, which is the Deliverable Sharesnumber of shares which would have been issued if the Merger was effective on October 31, 1995. Bancorp has a December 31 fiscal year end while F&M has a fiscal year ending April 30. For purposes of the pro forma unaudited consolidated financial statements, F&M's statements of earnings have been adjusted to reflect the nine months ended September 30 and the years ended December 31. Even though F&M uses an April 30 fiscal year end for reporting purposes, its internal books and records are maintained on a calendar year basis. F&M's internal financial statements were therefore used for the pro forma financial information on the following pages. On July 15, 1995 Peoples Bank & Trust Co. ("Peoples") merged with and into a wholly owned interim subsidiary of Bancorp and on October 1, 1995 Bright Financial Services, Inc. ("Bright") merged with and into Bancorp. Both mergers used the pooling-of-interest method of accounting. At December 31, 1994, its most recent fiscal year end, Peoples had total assets of approximately $53.0 million and net earnings of $703,000 for the year then ended. Bright had total assets of approximately $114.3 million at December 31, 1994 and net earnings of $920,000 for the year then ended. The following pro forma financial information has not been restated to include Peoples and Bright because these mergers did not result in the acquisition by Bancorp of significant subsidiaries, either individually or in the aggregate, under applicable regulations of the Exchange Act and are not expected to have a material effect on the financial condition and results of operations of Bancorp.3, 1996. 33 41 The pro forma information is based on the historical financial statements of the organizations presented giving effect to the accounting method proposed and the assumptions and adjustments in the accompanying notes to the pro forma financial statements. These pro forma unaudited statements are presented for illustrative purposes only and may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro forma unaudited financial statements should be read in conjunction with the audited and unaudited financial statements and related notes set forth or incorporated by reference in this Proxy Statement-Prospectus. 34 42 PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET AT SEPTEMBERJUNE 30, 19951996
First Hastings Consolidated Bancorp F&MFinancial Financial Pro Forma ---------- ---------- --------------------- --------- --------- (Dollars in thousands) ASSETS ASSETS Cash and due from banks $ 93,539100,805 $ 2,7543,249 $ 96,293104,054 Interest-bearing deposits with other banks 5,5126,385 0 5,5126,385 Federal funds sold and securities purchased under agreements to resell 8,006 0 8,0064,451 2,800 7,251 Investment securities held to maturity 105,849 20,494 126,343 Investment securities available for sale, at fair value 248,540 2,848 251,388 Loans: Commercial 321,846 7,032 328,878 Real estate-construction 36,730 77 36,807 Real estate-mortgage 753,777 19,009 772,786 Installment 315,097 6,420 321,517 Credit card 14,086 0 14,086 Lease financing 14,968 0 14,968 ---------- ---------- ---------- Total loans 1,456,504 32,538 1,489,042 Less: Unearned385,738 12,060 397,798 Loans, net of unearned income 612 2 614 Allowanceand allowance for loan losses 19,364 652 20,016 ---------- ---------- ---------- Net loans 1,436,528 31,884 1,468,4121,591,624 26,826 1,618,450 Premises and equipment 37,710 851 38,561 Deferred income taxes 3,964 176 4,14041,498 1,017 42,515 Accrued interest and other assets 29,741 959 30,700 ---------- ---------- ----------44,880 895 45,775 ----------- -------- ----------- TOTAL ASSETS $1,969,389 $ 59,966 $2,029,355 ========== ========== ==========2,175,381 $ 46,847 $ 2,222,228 =========== ======== =========== LIABILITIES Deposits: Noninterest-bearingDeposits $ 192,0991,811,404 $ 6,76640,736 $ 198,865 Interest-bearing 1,448,951 44,074 1,493,025 ---------- ---------- ---------- Total deposits 1,641,050 50,840 1,691,8901,852,140 Short term borrowings Federal funds purchased and securities sold under agreements to repurchase 64,332 800 65,132 Other 21,64587,151 0 21,645 ---------- ---------- ---------- Total short-term87,151 Long term borrowings 85,977 800 86,7774,541 0 4,541 Accrued interest and other liabilities 21,801 527 22,328 ---------- ---------- ----------23,446 831 24,277 ----------- -------- ----------- TOTAL LIABILITIES 1,748,828 52,167 1,800,9951,926,542 41,567 1,968,109 SHAREHOLDERS' EQUITY Common stock 100,549 600107,111 79 (A) 103,502109,526 Surplus 14,241 1,20012,611 731 (A) 12,95711,006 Retained earnings 104,957 6,212 111,169130,074 4,489 134,563 Treasury stock, at cost (464) 0 (131)(A) 0(464) Unrealized net gain (losses) on securities available-for-sale, net of deferred income taxes 865 (82) 783(244) (19) (263) Restricted stock awards (51)(249) 0 (51) ---------- ---------- ----------(249) ----------- -------- ----------- TOTAL SHAREHOLDERS' EQUITY 220,561 7,799 228,360 ---------- ---------- ----------248,839 5,280 254,119 ----------- -------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,969,389 $ 59,966 $2,029,355 ========== ========== ==========
- ------------------- See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page 41. 35 43 PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Consolidated Bancorp F&M Pro Forma ---------- ---------- ------------ (Dollars in thousands, except per share data) INTEREST INCOME: Loans, including fees2,175,381 $ 94,30546,847 $ 2,313 $ 96,618 Investment securities: Taxable 11,751 741 12,492 Tax-exempt 5,758 276 6,034 ----------- ---------- ----------- Total investment securities 17,509 1,017 18,526 Interest-bearing deposits with other banks 224 0 224 Federal funds sold and securities purchased under agreements to resell 128 32 160 ----------- ---------- ----------- Total interest income 112,166 3,362 115,528 INTEREST EXPENSE: Deposits 42,747 1,366 44,113 Short-term borrowings 3,376 3 3,379 ----------- ---------- ----------- Total interest expense 46,123 1,369 47,492 ----------- ---------- ----------- Net interest income 66,043 1,993 68,036 Provision for loan losses 1,151 135 1,286 ----------- ---------- ----------- Net interest income after provision for loan losses 64,892 1,858 66,750 NONINTEREST INCOME: Service charges on deposit accounts 6,314 145 6,459 Trust income 5,706 7 5,713 Gains on investment securities 300 0 300 Other 2,908 78 2,986 ----------- ---------- ----------- Total noninterest income 15,228 230 15,458 NONINTEREST EXPENSES: Salaries and employee benefits 24,321 827 25,148 Net occupancy 3,260 102 3,362 Furniture and equipment 2,415 85 2,500 Data processing 3,977 24 4,001 Deposit insurance 1,860 42 1,902 State taxes 1,224 0 1,224 Other 9,738 359 10,097 ----------- ---------- ----------- Total noninterest expenses 46,795 1,439 48,234 ----------- ---------- ----------- INCOME BEFORE INCOME TAXES 33,325 649 33,974 Income tax expense 9,850 178 10,028 ----------- ---------- ----------- NET EARNINGS $ 23,475 $ 471 $ 23,9462,222,228 =========== ========== =========== NET EARNINGS PER SHARE $ 1.91 $ 83.51 $ 1.89 =========== ========== =========== AVERAGE SHARES OUTSTANDING 12,311,609 5,633 12,680,749 (B) =========== ================== ===========
- -------------------- See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page 41. 3639. 35 4443 PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 19941996
First Hastings Consolidated Bancorp F&MFinancial Financial Pro Forma ------------ ------ --------------------- --------- --------- (Dollars in thousands, except per share data) INTEREST INCOME: INTEREST INCOME: Loans, including fees $ 76,459 $2,19070,112 $ 78,6491,260 $71,372 Investment securities: Taxable 13,800 789 14,589 Tax-exempt 7,349 269 7,618 ------------ ------ ------------ Total investment securities 21,149 1,058 22,207 Interest-bearing deposits with other banks 298 0 298 Federal funds sold and securities purchased under agreements to resell 281 63 344 ------------ ------ ------------12,516 320 12,836 Other 568 52 620 ----------- ------- ---------- Total interest income 98,187 3,311 101,49883,196 1,632 84,828 INTEREST EXPENSE: Deposits 34,634 1,357 35,99132,646 560 33,206 Short-term borrowings 1,342 3 1,3451,095 0 1,095 Long-term borrowings 124115 0 124 ------------ ------ ------------115 ----------- ------- ---------- Total interest expense 36,100 1,360 37,460 ------------ ------ ------------33,856 560 34,416 ----------- ------- ---------- Net interest income 62,087 1,951 64,03849,340 1,072 50,412 Provision for loan losses 657 76 733 ------------ ------ ------------1,370 9 1,379 ----------- ------- ---------- Net interest income after provision for loan losses 61,430 1,875 63,30547,970 1,063 49,033 NONINTEREST INCOME: Service charges on deposit accounts 6,154 145 6,299 Trust income 5,308 2 5,310 Losses on investment securities (618) 0 (618) Other 3,179 83 3,262 ------------ ------ ------------ Total noninterest income 14,023 230 14,253INCOME 10,662 194 10,856 NONINTEREST EXPENSES: Salaries and employee benefits 23,446 807 24,253 Net occupancy 3,165 90 3,255 Furniture and equipment 2,217 73 2,290 Data processing 3,863 21 3,884 Deposit insurance 2,652 107 2,759 State taxes 1,318 0 1,318 Other 9,583 289 9,872 ------------ ------ ------------ Total noninterest expenses 46,244 1,387 47,631 ------------ ------ ------------EXPENSES 33,917 775 34,692 ----------- ------- ---------- INCOME BEFORE INCOME TAXES 29,209 718 29,92724,715 482 25,197 Income tax expense 7,552 173 7,725 ------------ ------ ------------7,844 146 7,990 ----------- ------- ---------- NET EARNINGS $ 21,65716,871 $ 545 $ 22,202 ============ ====== ============336 $17,207 =========== ======= ========== NET EARNINGS PER SHARE $ 1.77 $96.801.28 $ 1.76 ============ ====== ============4.41 $ 1.27 =========== ======= ========== AVERAGE SHARES OUTSTANDING 12,213,201 5,633 12,582,341(B) ============ ====== ============13,203,147 76,130 13,505,034 (B) =========== ======= ==========
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1995
First Hastings Consolidated Financial Financial Pro Forma --------- --------- --------- (Dollars in thousands, except per share data) INTEREST INCOME: Loans, including fees $ 61,385 $ 1,056 $ 62,441 Investment securities 11,752 421 12,173 Other 169 16 185 ----------- ------- ---------- Total interest income 73,306 1,493 74,799 INTEREST EXPENSE: Deposits 27,503 523 28,026 Short-term borrowings 2,468 0 2,468 Long-term borrowings 0 0 0 ----------- ------- ---------- Total interest expense 29,971 523 30,494 ----------- ------- ---------- Net interest income 43,335 970 44,305 Provision for loan losses 619 3 622 ----------- ------- ---------- Net interest income after provision for loan losses 42,716 967 43,683 NONINTEREST INCOME 10,137 255 10,392 NONINTEREST EXPENSES 31,236 794 32,030 ----------- ------- ---------- INCOME BEFORE INCOME TAXES 21,617 428 22,045 Income tax expense 6,259 100 6,359 ----------- ------- ---------- NET EARNINGS $ 15,358 $ 328 $ 15,686 =========== ======= ========== NET EARNINGS PER SHARE $ 1.26 $ 4.26 $ 1.25 =========== ======= ========== AVERAGE SHARES OUTSTANDING 12,208,840 76,915 12,510,727 (B) =========== ======= ==========
- -------------------- See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page 41.39. 36 44 PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1995
First Hastings Consolidated Financial Financial Pro Forma --------- --------- --------- Dollars in thousands, except per share data) INTEREST INCOME: Loans, including fees $ 129,058 $ 2,137 $ 131,195 Investment securities 24,024 771 24,795 Other 769 97 866 ----------- ------- ----------- Total interest income 153,851 3,005 156,856 INTEREST EXPENSE: Deposits 59,413 1,074 60,487 Short-term borrowings 4,051 1 4,052 Long-term borrowings 52 0 52 ----------- ------- ----------- Total interest expense 63,516 1,075 64,591 ----------- ------- ----------- Net interest income 90,335 1,930 92,265 Provision for loan losses 2,108 34 2,142 ----------- ------- ----------- Net interest income after provision for loan losses 88,227 1,896 90,123 NONINTEREST INCOME 20,558 469 21,027 NONINTEREST EXPENSES 63,345 1,561 64,906 ----------- ------- ----------- INCOME BEFORE INCOME TAXES 45,440 804 46,244 Income tax expense 13,651 188 13,839 ----------- ------- ----------- NET EARNINGS $ 31,789 $ 616 $ 32,405 =========== ======= =========== NET EARNINGS PER SHARE $ 2.55 $ 8.10 $ 2.53 =========== ======= =========== AVERAGE SHARES OUTSTANDING 12,488,168 76,036 12,790,055 (B) =========== ======= ===========
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1994
First Hastings Consolidated Financial Financial Pro Forma --------- --------- --------- (Dollars in thousands, except per share data) INTEREST INCOME: Loans, including fees $ 104,936 $ 1,833 $ 106,769 Investment securities 27,905 1,003 28,908 Other 663 70 733 ----------- ------- ----------- Total interest income 133,504 2,906 136,410 INTEREST EXPENSE: Deposits 47,042 1,009 48,051 Short-term borrowings 2,421 0 2,421 Long-term borrowings 124 0 124 ----------- ------- ----------- Total interest expense 49,587 1,009 50,596 ----------- ------- ----------- Net interest income 83,917 1,897 85,814 Provision for loan losses 1,268 3 1,271 ----------- ------- ----------- Net interest income after provision for loan losses 82,649 1,894 84,543 NONINTEREST INCOME 17,462 317 17,779 NONINTEREST EXPENSES 62,139 1,670 63,809 ----------- ------- ----------- INCOME BEFORE INCOME TAXES 37,972 541 38,513 Income tax expense 9,799 138 9,937 ----------- ------- ----------- NET EARNINGS $ 28,173 $ 403 $ 28,576 =========== ======= =========== NET EARNINGS PER SHARE $ 2.31 $ 5.08 $ 2.28 =========== ======= =========== AVERAGE SHARES OUTSTANDING 12,210,753 79,249 12,512,640 (B) =========== ======= ===========
- -------------------- See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page 39. 37 45 PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 19941993
First Hastings Consolidated Bancorp F&MFinancial Financial Pro Forma ------------ ------ --------------------- --------- --------- (Dollars in thousands, except per share data) INTEREST INCOME: INTEREST INCOME: Loans, including fees $ 104,936 $2,906 $ 107,842 Investment securities: Taxable 18,229 1,050 19,279 Tax-exempt 9,676 365 10,041 ------------ ------ ------------ Total investment securities 27,905 1,415 29,320 Interest-bearing deposits with other banks 388 0 388 Federal funds sold and securities purchased under agreements to resell 275 76 351 ------------ ------ ------------ Total interest income 133,504 4,397 137,901 INTEREST EXPENSE: Deposits 47,042 1,783 48,825 Short-term borrowings 2,421 4 2,425 Long-term borrowings 124 0 124 ------------ ------ ------------ Total interest expense 49,587 1,787 51,374 ------------ ------ ------------ Net interest income 83,917 2,610 86,527 Provision for loan losses 1,268 157 1,425 ------------ ------ ------------ Net interest income after provision for loan losses 82,649 2,453 85,102 NONINTEREST INCOME: Service charges on deposit accounts 8,222 192 8,414 Trust income 7,017 2 7,019 Losses on investment securities (1,754) 0 (1,754) Other 3,977 106 4,083 ------------ ------ ------------ Total noninterest income 17,462 300 17,762 NONINTEREST EXPENSES: Salaries and employee benefits 31,296 1,033 32,329 Net occupancy 4,211 125 4,336 Furniture and equipment 3,006 98 3,104 Data processing 5,205 26 5,231 Deposit insurance 3,537 142 3,679 State taxes 1,726 0 1,726 Other 13,158 409 13,567 ------------ ------ ------------ Total noninterest expenses 62,139 1,833 63,972 ------------ ------ ------------ INCOME BEFORE INCOME TAXES 37,972 920 38,892 Income tax expense 9,799 220 10,019 ------------ ------ ------------ NET EARNINGS $ 28,173 $ 700 $ 28,873 ============ ====== ============ NET EARNINGS PER SHARE $ 2.31 $124.25 $ 2.30 ============ ====== ============ AVERAGE SHARES OUTSTANDING 12,210,753 5,633 12,579,893(B) ============ ====== ============
- -------------------- See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page 41. 38 46 PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1993
Consolidated Bancorp F&M Pro Forma ------------ ------ ------------ (Dollars in thousands, except per share data) INTEREST INCOME: Loans, including fees $ 99,333 $3,219 $ 102,5521,798 $ 101,131 Investment securities: Taxable 19,363 1,197 20,560 Tax-exempt 10,659 291 10,950 ------------ ------ ------------ Total investment securities 30,022 1,488 31,510 Interest-bearing deposits with other banks 578 0 578 Federal funds sold and securities purchased under agreements to resell 806 141 947 ------------ ------ ------------1,043 31,065 Other 1,384 76 1,460 ----------- ------- ----------- Total interest income 130,739 4,848 135,5872,917 133,656 INTEREST EXPENSE: Deposits 50,862 2,108 52,9701,056 51,918 Short-term borrowings 790 0 790 Long-term borrowings 228 0 228 ------------ ------ ----------------------- ------- ----------- Total interest expense 51,880 2,108 53,988 ------------ ------ ------------1,056 52,936 ----------- ------- ----------- Net interest income 78,859 2,740 81,5991,861 80,720 Provision for loan losses 3,747 395 4,142 ------------ ------ ------------0 3,747 ----------- ------- ----------- Net interest income after provision for loan losses 75,112 2,345 77,4571,861 76,973 NONINTEREST INCOME: Service charges on deposit accounts 8,513 195 8,708 Trust income 6,425 10 6,435 Losses on investment securities (71) 0 (71) Other 4,722 103 4,825 ------------ ------ ------------ Total noninterest incomeINCOME 19,589 308 19,897280 19,869 NONINTEREST EXPENSES: Salaries and employee benefits 29,633 1,116 30,749 Net occupancy 4,219 113 4,332 Furniture and equipment 3,147 87 3,234 Data processing 4,741 56 4,797 Deposit insurance 3,468 142 3,610 State taxes 1,704 0 1,704 Other 15,126 383 15,509 ------------ ------ ------------ Total noninterest expensesEXPENSES 62,038 1,897 63,935 ------------ ------ ------------1,510 63,548 ----------- ------- ----------- INCOME BEFORE INCOME TAXES 32,663 756 33,419631 33,294 Income tax expense 7,469 193 7,662 ------------ ------ ------------219 7,688 ----------- ------- ----------- NET EARNINGS $ 25,194 $ 563412 $ 25,757 ============ ====== ============25,606 =========== ======= =========== NET EARNINGS PER SHARE $ 2.06 $99.96$ 5.23 $ 2.05 ============ ====== ======================= ======= =========== AVERAGE SHARES OUTSTANDING 12,211,405 5,633 12,580,545(B) ============ ====== ============
- -------------------- See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page 41. 39 47 PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1992
Consolidated Bancorp F&M Pro Forma ----------- ------ ----------- (Dollars in thousands, except per share data) INTEREST INCOME: Loans, including fees $ 109,072 $3,502 $ 112,574 Investment securities: Taxable 20,778 1,256 22,034 Tax-exempt 10,918 253 11,171 ----------- ------ ----------- Total investment securities 31,696 1,509 33,205 Interest-bearing deposits with other banks 883 0 883 Federal funds sold and securities purchased under agreements to resell 1,788 94 1,882 ----------- ------ ----------- Total interest income 143,439 5,105 148,544 INTEREST EXPENSE: Deposits 65,743 2,511 68,254 Short-term borrowings 878 0 878 Long-term borrowings 337 0 337 ----------- ------ ----------- Total interest expense 66,958 2,511 69,469 ----------- ------ ----------- Net interest income 76,481 2,594 79,075 Provision for loan losses 6,543 320 6,863 ----------- ------ ----------- Net interest income after provision for loan losses 69,938 2,274 72,212 NONINTEREST INCOME: Service charges on deposit accounts 7,810 176 7,986 Trust income 5,912 0 5,912 Gains on investment securities 1,811 3 1,814 Other 4,281 131 4,412 ----------- ------ ----------- Total noninterest income 19,814 310 20,124 ----------- ------ ----------- NONINTEREST EXPENSES: Salaries and employee benefits 28,260 1,011 29,271 Net occupancy 3,858 107 3,965 Furniture and equipment 3,228 136 3,364 Data processing 4,725 22 4,747 Deposit insurance 3,553 118 3,671 State taxes 1,638 0 1,638 Other 15,377 412 15,789 ----------- ------ ----------- Total noninterest expenses 60,639 1,806 62,445 ----------- ------ ----------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 29,113 778 29,891 Income tax expense 7,343 180 7,523 ----------- ------ ----------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES $ 21,770 $ 598 $ 22,36878,883 12,513,292 (B) =========== ====== =========== EARNINGS PER SHARE BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES $ 1.77 $106.16 $ 1.76 =========== ====== =========== AVERAGE SHARES OUTSTANDING 12,318,805 5,633 12,687,945(B) =========== ============= ===========
- -------------------- See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page 41. 4039. 38 4846 NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------------------------ General - ------- Reclassification of information has been made at times to provide consistency in the presentation of financial information for the corporations involved. These reclassifications are not material in nature and had no effect on net earnings. Listed below are certain costs that are directly attributable to the Merger and some of these can reasonably be expected to be included in the expenses of BancorpFirst Financial during the next 12 months. At SeptemberJune 30, 1995,1996, approximately $80,000$16,000 of the costs listed below have already been paid and expensed or accrued and expensed by F&M.Hastings Financial. Those costs not previously paid or accrued were not considered in the preparation of the Pro Forma Unaudited Consolidated Financial Statements.
Classification Amount -------------- -------------- (Dollars in thousands) Legal $125,000$ 40 Accounting 95,00075 Financial advisor 15,000120 Regulatory filing fees 13,00010 Other 13,000 --------10 ------- Total $261,000$ 255 =======
(A) BancorpFirst Financial is offering to exchange shares of BancorpFirst Financial Common Stock for outstanding shares of F&MHastings Financial Common Stock. The exact number of BancorpFirst Financial shares to be issued (Deliverable Shares)for each share of Hastings Financial Common Stock is not yet known. It will be calculated by dividing $12,500,000the Merger Price by the Average, Price. Inwhich quotient will be further divided by the aggregate number of shares of Hastings Financial Common Stock issued and outstanding immediately prior to the Effective Time. The Exchange Ratio will be appropriately adjusted in the event of the subdivision or split of the outstanding Bancorp shares, the payment of a dividend in Bancorp shares orFirst Financial Common Stock, a capital reorganization, or a reclassification or recapitalization affecting the closing price for Bancorp shares during some but not all of said trading days, the number of Deliverable Shares will be adjusted proportionately so that the holders of outstanding F&M shares shall receive the number of Bancorp shares that represents the same percentage of the value of outstanding Bancorp shares at the Effective Time as would have been represented by the number of shares such shareholders would have received if the event had not occurred. Each holder of F&M shares shall be entitled to a portion of the Deliverable Shares that is equal to the number of Deliverable Shares multiplied by a fraction, the numerator of which is the number of F&M shares held by that shareholder immediately prior to the Effective Time and the denominator of which is the number of F&M shares outstanding immediately prior to the Effective Time. Total Deliverable Shares would equal 369,140 shares ifFirst Financial Common Stock. If the Merger was consummated on October 31, 1995. 41September 3, 1996, the Average would be $33.125, the Exchange Ratio would be 3.751871 shares of First Financial Common Stock for each share of Hastings Financial Common Stock, and the number of shares of First Financial Common Stock to be issued would be 301,887 shares. 39 4947 (B) The par value of BancorpFirst Financial Common Stock is $8.00 per share, while the F&Mpar value of Hastings Financial Common Stock is without par. The$1.00 per share. Assuming an Exchange Ratio of 3.751871, the additional par value of the shares of BancorpFirst Financial Common Stock issued, in the aggregate, over the par value of F&MHastings Financial Common Stock, in the aggregate, is transferred from surplus, as shown in the table below:
F&M Retirement ofHastings Hastings Financial Transfer from F&MFinancial Actual Treasury Stock Surplus Pro Forma ------ ------- -------------- ------------- --------- (In(Dollars in thousands) Common stock $ 600 $ (37) $ 2,390 $ 2,95379 $2,336 $2,415 Surplus 1,200 (94) (2,390) (1,284) Treasury stock, at cost (131) 131 0 0 ------- ----- ------- -------731 (2,336) (1,605) ------ ------ ------ Total common stock and surplus $ 1,669810 $ 0 $ 0 $ 1,669 ======= ===== ======= =======810 ====== ====== ======
The consolidated pro forma shareholders' equity per share was calculated assuming the issuance of 369,140301,887 shares of BancorpFirst Financial Common Stock at an Average equal to $33.8625,$33.125, which is the Average that would have been in effect if the Merger was effective October 31, 1995.September 3, 1996. The use of the number of shares is for illustrative purposes only and does not attempt to predict the actual number of shares to be issued in the Merger. 4240 5048 INFORMATION ABOUT BANCORPFIRST FINANCIAL Information about BancorpFirst Financial is included in the BancorpFirst Financial Form 10-K, previously incorporated herein by reference, and in Bancorp'sFirst Financial's Quarterly Report on Form 10-Q for the quarters ended March 31 and June 30, and September 30, 1995,1996, previously incorporated herein by reference. 4341 5149 INFORMATION ABOUT THE BUSINESS OF F&MHASTINGS FINANCIAL General F&M,- ------- Hastings Financial, a bank holding company, was established in 19841988 and is headquartered in Rochester, Indiana,Hastings, Michigan, the county seat of FultonBarry County. The holding company's wholly owned subsidiary, Farmers & MerchantsNational Bank is a state-chartered commercial bank,of Hastings, was chartered by the StateOffice of Indianathe Comptroller of the Currency as a national bank in 1934. Farmers & Merchants1933. National Bank of Hastings conducts its business through a main office and drive-up facility, both of which are located in Rochester, Indiana,Hastings, Michigan and a full service branch located in Kewanna, Indiana.Wayland, Michigan. Its primary market area includes the cities of RochesterHastings and Kewanna, IndianaWayland and the contiguous areaareas within Fulton County, Indiana.Barry and Allegan Counties, Michigan. The only commercial community banking operation in the Rochester area, Farmers & Merchants'economic base of National Bank of Hastings' primary market area contains a diverse business and economic base ofis primarily agriculture, but also includes light manufacturing, recreational areas and service companies and farms.companies. As of AprilJune 30, 1995, F&M1996, Hastings Financial had total assets of $59.2approximately $47 million, and total deposits of $51.4approximately $41 million and shareholders' equity of approximately $5 million. It had 3235 employees at October 31, 1995. Farmers & MerchantsJune 30, 1996. National Bank of Hastings has operated as a traditional community bank since its founding. As with many community banks, its lending focus has been strongly real estate-oriented.estate and installment lending oriented. At April 30,December 31, 1995, approximately 59.3%48.7% and 47.9% of its lending portfolio was comprised of real estate loans.and installment loans, respectively. The balance of its loan portfolio is comprised primarily of consumer and commercial loans. Lendable funds are obtained primarily from deposits and loan principal payments. Farmers & MerchantsNational Bank of Hastings offers a full line of checking and NOW accounts, passbook savings, certificates of deposit and individual retirement accounts. In addition to originating loans, Farmers & MerchantsNational Bank of Hastings invests in U.S. treasury and government agency securities, corporate notes and municipal securities. Competition Farmers & Merchants- ----------- National Bank of Hastings competes for deposits with other commercial banks, savings associations, savings banks, credit unions and with issuers of commercial paper and other securities, such as shares in money market mutual funds. The primary factors in competing for deposits are interest rates, service and convenience of office location. In making loans, Farmers & MerchantsNational Bank of Hastings competes with other commercial banks, savings associations, savings banks, consumer finance companies, credit unions, leasing companies, mortgage companies, and other lenders. Farmers & MerchantsNational Bank of Hastings competes for loan originations primarily through the interest rates and loan fees it charges and through the efficiency and quality of services it provides to borrowers. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors which are not readily predictable. 4442 5250 Regulation F&M,- ---------- Hastings Financial, as a bank holding company, is subject to supervision and/or regular examination by the Federal Reserve Board and the Federal Deposit Insurance Corporation (the "FDIC"). Farmers & Merchants,National Bank of Hastings, as a state-charterednational bank, is subject to supervision and regular examination by the Indiana DepartmentOffice of Financial Institutionsthe Comptroller of the Currency, as primary regulator, and by the FDIC.FDIC, as backup regulator. Properties Farmers & Merchants- ---------- National Bank of Hastings operates a main office and drive-up facility in Rochester, IndianaHastings, Michigan and a branch office in Kewanna, Indiana.Wayland, Michigan. All offices are owned by Farmers & Merchants. F&MNational Bank of Hastings. Hastings Financial does not directly own any real property. Legal Proceedings - ----------------- Neither F&MHastings Financial nor Farmers & MerchantsNational Bank of Hastings is presently involved in any legal proceedings of a material nature. From time to time, Farmers & MerchantsNational Bank of Hastings is a party to legal proceedings incidental to its business to enforce its security interest in collateral pledged to secure loans made by Farmers & Merchants. 45National Bank of Hastings. Certain Transactions With Hastings Financial - -------------------------------------------- At December 31, 1995, certain directors and executive officers of Hastings Financial and members of the immediate families of such directors and executive officers were indebted to National Bank of Hastings in the aggregate amount of approximately $175,000. Such indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons. All such loans were current at December 31, 1995 and June 30, 1996 and are not considered to involve more than the normal risk of collectibility or to present other unfavorable features. 43 5351 Selected Financial Data - ----------------------- The following table sets forth certain information concerning the financial condition, earnings and other data regarding F&MHastings Financial at the dates and for the periods indicated:
Financial condition At AprilJune 30, At December 31, and other data: ------------------------------------------------------------------------- ---------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ------------------------------------------------------------------------- ---------------------------------------------- (Dollars in thousands) Total amount of: Assets $59,186 $60,949 $63,045 $59,458 $55,519$46,847 $44,489 $46,140 $45,797 $44,690 $46,556 $39,576 Investment securities: Held-to-maturity 21,352 23,151 23,476 22,854 19,62710,428 11,704 10,767 13,292 18,497 17,009 11,611 Available-for-sale 2,775 2,9401,632 2,097 1,655 4,578 0 0 0 Loans receivable, net of unearned income, and deferred loan fees 31,981 28,850 31,735 32,367 31,170and allowance for loan losses 26,826 23,970 24,964 23,154 18,701 19,668 21,105 Deposits 51,424 53,591 55,903 53,051 49,11240,736 38,994 40,442 39,958 39,644 41,780 35,225 Shareholders' equity 7,397 7,040 6,651 5,953 5,8955,280 4,756 4,914 4,571 4,368 4,085 3,872
Six months ended Earnings and other June 30, Year ended April 30,December 31, data: ------------------------------------------------------------------------ ------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ------------------------------------------------------------------------ ------------------------------------------------- (Dollars in thousands, except per share data) Interest income $ 4,382 $ 4,657 $ 5,082 $5,241 $4,884$1,632 $1,493 $3,005 $2,906 $2,917 $3,256 $3,387 Interest expense 1,743 1,994 2,428 2,786 2,742 ------- ------- -------560 523 1,075 1,009 1,056 1,349 1,645 ------ ------ ------ ------ ------ ------ ------ Net interest income 2,639 2,663 2,654 2,455 2,1421,072 970 1,930 1,897 1,861 1,907 1,742 Provision for loan losses 184 408 86 512 145 ------- ------- -------9 3 34 3 0 5 25 ------ ------ ------ ------ ------ ------ ------ Net interest income after provision for loan losses 2,455 2,255 2,568 1,943 1,9971,063 967 1,896 1,894 1,861 1,902 1,717 Other income 297 297 313 312 321194 255 469 317 280 295 289 Other expenses 1,903 1,832 1,774 1,801 1,684 ------- ------- -------775 794 1,561 1,670 1,510 1,484 1,464 ------ ------ ------ ------ ------ ------ ------ Earnings before income taxes and cumulative effect of change in accounting principle 849 720 1,107 454 634482 428 804 541 631 713 542 Income taxes 223 148 263 208 200 ------- ------- -------146 100 188 138 219 198 166 ------ ------ ------ ------ ------ ------ ------ Net earnings $ 626336 $ 572328 $ 844616 $ 246403 $ 434 ======= ======= =======412 $ 515 $ 376 ====== ====== ====== ====== ====== ====== ====== Net earnings per share $111.12 $101.55 $149.89 $43.60 $76.18 ======= ======= =======$ 4.41 $ 4.26 $ 8.10 $ 5.08 $ 5.23 $ 6.57 $ 4.77 ====== ====== ====== ====== ====== ====== ====== Dividends per share $ 30.001.25 $ 26.000.00 $ 26.00 $26.00 $26.002.25 $ 1.75 $ 1.65 $ 1.65 $ 1.65 Return on equity (net earnings divided by average equity) 8.41% 8.22% 13.04% 4.11% 7.50%13.18%(1) 14.07%(1) 12.98% 8.49% 9.21% 12.57% 9.43% Return on assets (net earnings divided by average total assets) 1.03% 0.90% 1.34% 0.43% 0.81%1.45%(1) 1.45%(1) 1.37% 0.89% 0.92% 1.20% 0.97% Dividend payout ratio (dividends declared per share divided by net earnings per share) 28.34% N/A 27.78% 34.45% 31.55% 25.11% 34.59% Book value per common share $66.45 $63.02 $65.12 $58.33 $55.74 $52.12 $49.41 Average shareholders' equity to average total assets 10.96% 10.33% 10.58% 10.47% 10.00% 9.45% 10.23% - ------ (1) Annualized
4644 5452 Analysis Of Net Interest Income - ------------------------------- The following table sets forth for the years ended April 30,December 31, 1995, 1994 and 1993 the average balances of major categories of interest earning assets and interest bearing liabilities, interest income earned and interest expense paid during such periods and the related weighted average rates for F&M.Hastings Financial.
Year ended April 30, -----------------------------------------------------------------December 31, 1995 1994 1993 ----------------------------- ------------------------------ ------------------------------------------------------------ Average Interest Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate Balance Paid Rate Balance Paid Rate ------- ---- ---- ------- ---- ---- ------- ---- ---- (Dollars in thousands) Interest-earning assets: Loans receivable (1) $30,358 $ 2,933 9.66% $30,21223,691 $ 3,079 10.19%2,137 9.02% $19,958 $1,833 9.18% $18,696 $1,798 9.62% Investment securities: Taxable 19,405 1,036 5.34% 19,037 1,120 5.88%11,161 617 5.53% 14,032 811 5.78% 14,041 894 6.37% Tax-exempt (2) 6,345 566 8.92% 5,171 474 9.16%3,059 234 7.65% 4,353 291 6.69% 4,165 226 5.43% Federal funds sold 728 40 5.46% 4,709 146 3.10%1,687 97 5.75% 1,693 70 4.13% 2,389 76 3.18% ------- ------ ---------- ------- ------ ------- ------- ------ Total interest-earning assets 56,836 4,575 8.05% 59,129 4,819 8.15%39,598 3,085 7.79% 40,036 3,005 7.51% 39,291 2,994 7.62% Noninterest-earning assets: Allowance for loan losses (545) (537)(174) (174) (195) Other 4,644 5,079 -------5,423 5,465 5,664 -------- -------- ------- Total assets $60,935 $63,671 =======$ 44,847 $ 45,327 $44,760 ======== ======== ======= Interest-bearing liabilities: Demand deposits $11,956 290 2.43% $12,779 313 2.45%$ 12,471 428 3.43% $13,716 408 2.97% $13,743 411 2.99% Savings deposits 8,314 227 2.73% 7,593 207 2.73%11,018 299 2.71% 11,340 308 2.72% 10,978 309 2.81% Time deposits 26,056 1,220 4.68% 29,912 1,469 4.91%6,974 347 4.98% 7,446 293 3.93% 8,160 336 4.12% Federal fundsFunds purchased 87 6 7.07%8 1 12.50% 3 0 0.00% 0 0 0.00% Capital lease obligations 0 0 0.00% 46 5 11.54% ------- ------- ------ ------- ------ ------- ------ Total interest-bearing liabilities 46,413 1,743 3.75% 50,330 1,994 3.96%30,471 1,075 3.53% 32,505 1,009 3.10% 32,881 1,056 3.21% ------- ------ ------- ------ Noninterest-bearing liabilities 7,083 6,385Noninterest-bearing demand deposits 8,763 7,370 6,759 Other liabilities 867 706 645 ------- ------------- ----- Total liabilities 53,496 56,71540,101 40,581 40,285 Stockholders' equity 7,439 6,9564,746 4,746 4,475 ------- ------ ------- Total liabilities and stockholders' equity $60,935 $63,671$ 44,847 $ 45,327 $ 44,760 ======= ============= ========== Net interest income; interest rate spread $ 2,832 4.30%2,010 4.26% $ 2,825 4.19%1,996 4.41% $1,938 4.41% ======= =========== ======== ======= ====== ===== Net interest margin (net interest income as a percent of average interest-earning assets) 4.98% 4.78% =====5.08% 4.99% 4.93% ======= ====== ====== Average interest-earning assets to average interest-bearing liabilities 122.5% 117.5% ====== ======
Year ended April 30, -------------------------------- 1993 -------------------------------- Average Interest Outstanding Earned/ Yield/ Balance Paid Rate Interest-earning assets: Loans receivable130.0% 123.2% 119.5% ===== ===== ===== ------------------ (1) $32,470 $ 3,470 10.69% Investment securities: Taxable 18,594 1,242 6.68% Tax-exempt (2) 4,459 403 9.03% Federal funds sold 3,348 105 3.13% ------- ------- ------ Total interest-earning assets 58,871 5,220 8.87% Noninterest-earning assets: Allowance forFor purposes of these computations, nonaccrual loans are included in the average loan losses (487) Other 4,466 ------- Total assets $62,850 ======= Interest-bearing liabilities: Demand deposits $11,601 342 2.95% Savings deposits 6,678 218 3.26% Time deposits 32,762 1,836 5.61% Federal funds purchased 0 0 0.00% Capital lease obligations 259 32 12.21% ------- ------- ------ Total interest-bearing liabilities 51,300 2,428 4.73% ------- ------ Noninterest-bearing liabilities 5,073 ------- Total liabilities 56,373 Stockholders' equity 6,477 ------- Total liabilitiesbalances outstanding and stockholders' equity $62,850 ======= Netloan fees are included in interest income; interest rate spread $ 2,792 4.14% ======= ====== Net interest margin (net interest income ason loans receivable. The inclusion of nonaccrual loans and fees does not have a percent ofmaterial effect on either the average interest-earning assets) 4.74% ====== Average interest-earning assets tobalance or the average interest-bearing liabilities 114.8% ======
- -------------------- (1) For purposes of these computations, nonaccrual loans are included in the average loan balances outstanding.yield. (2) Interest income on tax-exempt investments has been adjusted to a taxable equivalent basis using a marginal federal income tax rate of 34.0%. 47 45 5553 Interest Income And Expense Rate/Volume Analysis - ------------------------------------------------ The table below describes the extent to which changes in interest rates and changes in the volume of interest earning assets and interest bearing liabilities have affected F&M'sHastings Financial's interest income and expense during the periods indicated. For each category of interest earning assets and interest bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume) and (iii) total changes in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been allocated proportionately to the change due to volume and the change due to rate.
Year ended April 30, -------------------------------------------------------------December 31, ------------------------------------------------- 1995 vs. 1994 1994 vs. 1993 ---------------------------- ----------------------------------------- ------------- Increase (decrease) Increase (decrease) due to due to ----------------- ----------------------- ------ Volume Rate Total Volume Rate Total ------ --------- ----- ------ ---- ----- ----- (In Thousands)(Dollars in thousands) Interest income attributable to: Interest income attributable to: Loans receivable $ 15 $(161) $(146) $(234) $(157) $(391)336 $ (32) $ 304 $ 105 $(70) $ 35 Investment securities: Taxable 21 (105) (84) 29 (151) (122)(160) (34) (194) (1) (82) (83) Tax-exempt (1) 105 (13) 92(111) 54 (57) 11 54 65 6 71 Federal funds sold (173) 67 (106) 42 (1) 410 27 27 (25) 19 (6) ----- ----- ----- ----- ----- --------- ---- Total interest income (32) (212) (244) (98) (303) (401)65 15 80 90 (79) 11 Interest expense attributable to: Interest-bearing demand deposits (20)(29) 49 20 (1) (2) (3) (23) 33 (62) (29) Savings deposits 20(9) 0 20 28 (39)(9) 10 (11) (1) Time deposits (183) (66) (249) (152) (215) (367)(17) 71 54 (29) (14) (43) Federal funds purchased 6 0 61 1 0 0 0 Capital lease obligations (3) (2) (5) (25) (2) (27) ----- ----- ----- ----- ----- --------- ---- Total interest expense (180) (71) (251) (116) (318) (434)(55) 121 66 (20) (27) (47) ----- ----- ----- ----- ----- --------- ---- Increase (decrease) in net interest income $ 148 $(141)120 $(106) $ 714 $ 18110 $(52) $ 15 $ 3358 ===== ===== ===== ===== ===== =====
--------------------==== ==== - ---------------- (1) Interest income on tax-exempt investments has been adjusted to a taxable equivalent basis using a marginal federal income tax rate of 34.0%. Investment Securities - --------------------- The following table sets forth the carrying amount of investment securities at April 30,December 31, 1995 and 1994:1994. Investment securities classified as held-to-maturity are recorded at amortized cost and those classified as available-for-sale are recorded at fair value.
Held-to-Maturity Available-for-Sale April 30, April 30, --------------------- ----------------------------------- ------------------ December 31, December 31, ------------ ------------ 1995 1994 1995 1994 --------------- -------- ------- ------ ------ (In(Dollars in thousands) U.S. Treasury securitiestreasury and government agencies $ 07,510 $ 500 $ 0 $ 0 U.S. Government agencies 13,988 15,069 2,775 2,9409,945 $1,436 $1,870 Obligations of states and political subdivisions 6,861 6,8192,907 2,981 0 02,500 Other corporate securities 503 763251 254 219 208 Mortgage-backed securities 99 112 0 0 ------- ------- ------ ------ Total $21,352 $23,151 $2,775 $2,940$10,767 $13,292 $1,655 $4,578 ======= ======= ====== ======
4846 5654 The following table presents the contractual maturities or terms to repricing of investment debt securities and the weighted average yield at April 30,December 31, 1995.
Due 0-1 year Due 1-5 years Due 5-10 years Due after 10 after after after years after 4-30-95 4-30-95 4-30-95 4-30-9512-31-95 12-31-95 12-31-95 12-31-95 Totals -------------- --------------- -------------- -------------- ------------------------ -------- -------- -------- ------ Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield ------ ----- ------------- ----- ------ ----- ------ ----- ------ ----- (In(Dollars in thousands) HELD-TO-MATURITY: U.S. Government Agenciestreasury and government agencies $ 999 4.76% $12,989751 6.85% $ 6,759 4.99% $ 0 0.00% $ 0 0.00% $ 7,510 5.18% Obligations of states and political subdivisions(1) 369 5.85% 1,149 7.35% 1,389 7.53% 0 0.00% 2,907 7.25% Other corporate securities 251 8.35% 0 0.00% 0 0.00% 0 0.00% 251 8.35% Mortgage-backed securities 0 0.00% 0 0.00% 0 0.00% 99 5.75% 99 5.75% ------- ------- ------- ------- ------- Total Held-to-Maturity $ 1,371 6.86% $ 7,908 5.33% $ 1,389 7.53% $ 99 5.75% $10,767 5.82% ======= ===== ======= ===== ======= ===== ======= ===== ======= ===== AVAILABLE-FOR-SALE: U.S. treasury and government agencies $ 465 7.86% $ 971 4.70% $ 0 0.00% $ 0 0.00% $ 1,436 5.72% Other corporate securities 0 0.00% 219 8.46% 0 0.00% 0 0.00% 219 8.46% ------- ------- ------ ------- ------- Total Available-for-Sale $ 465 7.86% $ 1,190 5.39% $ 0 0.00% $ 0 0.00% $13,988 5.35% Obligations of states and political subdivisions(1) 421 6.77 1,637 9.14 2,549 8.97 2,254 8.94 6,861 8.87 Other securities 503 7.02 0 0.00 0 0.00 0 0.00 503 7.02 ------ ---- ------- ---- ------ ---- ------ ---- ------- ---- Total Held-to-Maturity $1,923 5.79% $14,626 5.80% $2,549 8.97% $2,254 8.94% $21,352 6.51%$ 1,655 6.08% ======= ===== ======= ===== ====== ========= ======= ==== ====== ==== ====== ========= ======= ==== AVAILABLE-FOR-SALE: U.S. Government agencies $ 0 0.00% $ 2,775 4.81% $ 0 0.00% $ 0 0.00% $ 2,775 4.81% ====== ==== ======= ==== ====== ==== ====== ==== ======= ====
===== - -------------------- (1) Yields on tax-exempt investments have been computed on a tax equivalent basis using a marginal federal income tax rate of 34.0%. At April 30,December 31, 1995 there were no holdings of securities of any one issuer, other than the U.S. Governmentgovernment and its agencies and corporations, in an amount greater than 10% of shareholders' equity. Loan Portfolio - -------------- LOAN PORTFOLIO COMPOSITION. F&M'sHastings Financial's primary lending area are the cities of RochesterHastings and Kewanna, IndianaWayland, Michigan and the contiguous area in Fulton County, Indiana.Barry and Allegan Counties, Michigan. The following table presents certain information in respect of the composition of F&M'sHastings Financial's loan portfolio at the dates indicated:
At April 30, ---------------------December 31, --------------- 1995 1994 ------- ------- (In---------- -------- (Dollars in thousands) Commercial &and agricultural $ 6,810695 $ 6,711517 Real estate-construction 175 1830 0 Real estate-mortgage 18,778 16,24412,249 12,558 Installment 6,218 5,71212,057 10,052 Other 163 203 ------- ------- Total loans 31,981 28,85025,164 23,330 Allowance for loan losses 643 602(200) (176) ------- ------- Net loans $31,338 $28,248$24,964 $23,154 ======= =======
At December 31, 1995, Hastings Financial did not have any concentrations of loans exceeding 10.0% of total loans not otherwise disclosed in the loan categories in the table above. 47 55 LOAN MATURITY SCHEDULE. The following table sets forth certain information at April 30,December 31, 1995 regarding loans, excluding real estate-mortgage, installment and other, maturing or repricing in F&M'sHastings Financial's portfolio, based on the earlier of contractual terms to maturity or the next scheduled repricing date for variable rate loans:
Due 0-1 year Due 1-5 years Due 5-10 years Due after 10 after after after years after 4-30-95 4-30-95 4-30-95 4-30-9512-31-95 12-31-95 12-31-95 12-31-95 Total ------------ ------------- -------------- ------------ ------ (In-------- -------- -------- -------- ----- (Dollars in thousands) Commercial and agricultural $4,830 $1,415 $565 $0 $6,810 Real estate-construction 175$ 695 $ 0 $ 0 $ 0 175 ------ ------ ---- -- ------ Total $5,005 $1,415 $565 $0 $6,985 ====== ====== ==== == ======$ 695 ======= ======= ======= ======= =======
49 57 The following table sets forth the dollar amount of all loans due after one year after April 30,December 31, 1995 that have predetermined interest rates and have floating or adjustable interest rates:
Predetermined Floating or rates adjustable rates ------------------ ---------------- (In(Dollars in thousands) Commercial &and agricultural $1,980 $0 Real estate-construction$ 0 $ 0 ------ -- Total $1,980 $0 ====== ========= =======
DELINQUENT LOANS AND NONPERFORMING ASSETS. All loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of interest is doubtful. Loans are classified as restructured when management, to protect its investment, grants concessions that would not otherwise be considered to a debtor. Other real estate owned ("OREO") represents real estate acquired by F&MHastings Financial as a result of loan defaults by customers. The following table summarizes F&M'sHastings Financial's nonaccrual loans, restructured loans, OREO and past due loans at April 30,December 31, 1995 and 1994:
At April 30, ------------------December 31, --------------- 1995 1994 ---- ---- (In(Dollars in thousands) Nonaccrual loans $646 $527$ 29 $ 0 Restructured loans 0 0 Other real estate owned 0 128 ---- ----57 ------ ------ Total nonperforming assets $646 $655 ==== ====$ 29 $ 57 ====== ====== Accruing loans past due 90 days or more $192 $140 ==== ====$ 3 $ 62 ====== ======
Interest income which would have been recorded under the original terms of nonaccrual loans and the interest income actually recognized are summarized below:
Year ended April 30,December 31, 1995 1994 ---- ---- (In(Dollars in thousands) Interest income which would have been recorded $59 $57$ 3 $ 0 Interest income recognized 2 0 0 --- --------- ------ Interest income foregone $59 $57 === ===$ 1 $ 0 ====== ======
At April 30,December 31, 1995 F&MHastings Financial did not have any loans not currently classified as nonaccrual or 90 days past due and accruing where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in future disclosure of such loans. 48 56 ALLOWANCE FOR LOAN LOSSES. F&MHastings Financial maintains an allowance to absorb anticipated losses on loans. Additions to the allowance for loan losses are charged to the provision for loan losses on the statement of income. Management reviews on a quarterly basis the allowance for loan losses as it relates to a number of relevant factors, including, but not limited to, trends in the level of nonperforming assets, current and anticipated economic conditions in the primary lending area, past loss experience, loan concentrations, composition of the loan portfolio and possible losses arising from specific problem loans. While management believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in evaluating the adequacy of the allowance for loan losses. 50 58 The following table sets forth an analysis of F&M'sHastings Financial's allowance for loan losses for the periods indicated:
Year ended April 30, ---------------------------------December 31, ----------------------- 1995 1994 1993 ---- ---- ---- (In(Dollars in thousands) Balance at beginning of period $602 $489 $491$176 $ 167 $198 Charge-offs: Commercial and agricultural 0 0 28 243 42 Real estate-construction 0 0 0 Real estate-mortgage 76 16 310 0 0 Installment 105 99 1128 11 8 ---- --------- ---- Total charge-offs 209 358 15718 11 36 Recoveries: Commercial and agricultural 8 2 270 12 4 Real estate-construction 0 0 0 Real estate-mortgage 2 22 140 0 Installment 56 39 286 5 1 ---- --------- ---- Total recoveries 66 63 698 17 5 Net charge-offs (recoveries) 143 295 8810 (6) 31 Provision for loan losses 184 408 8634 3 0 ---- --------- ---- Balance at end of period $643 $602 $489$200 $ 176 $167 ==== ========= ==== Ratio of net charge-offs (recoveries) during the period to average loans outstanding during the period 0.47% 0.98 0.04% (0.03)% 0.27%0.16% ==== ========= ====
The following table provides an allocation of F&M'sHastings Financial's allowance for loan losses by category for the periods indicated. The allowance can be allocated by category only on an approximate basis. The allocation of allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any other category.
Percentage of Loans Allowance for Loan Losses to Total Loans At April 30,December 31, At December 31, --------------- --------------- 1995 1994 1995 1994 ---- ---- (In---- ---- (Dollars in thousands) Commercial and agricultural $158 $253$ 38 $ 9 2.76% 2.21% Real estate-construction 0 0 0.00% 0.00% Real estate-mortgage 262 18773 39 48.68% 53.83% Installment loans 129 989 8 47.91% 43.09% Other 0 0 0.00% 0.00% Unallocated 94 64 ---- ----80 120 0.65% 0.87% ------ ------ ------- ------- Total $643 $602 ==== ====$ 200 $ 176 100.00% 100.00% ====== ====== ======= =======
49 57 Deposits - -------- Deposits have traditionally been the primary source of F&M'sHastings Financial's funds for use in lending and other investment activities. Deposits are attracted principally within the cities of RochesterHastings and Kewanna, IndianaWayland, Michigan and the contiguous area in Fulton County, IndianaBarry and Allegan Counties, Michigan through the offering of a broad selection of deposit instruments, including checking and NOW accounts, money market deposit accounts, regular passbook savings accounts, term certificate accounts and retirement savings plans. F&MHastings Financial has not and does not presently use brokers to attract deposits. 51 59 The following table presents the average balance of and the average rate paid on various deposit categories for the periods indicated:
Year ended April 30, ---------------------------------------------December 31, ----------------------- 1995 1994 ---------------------- ---------------------- ---- Average Average Average Average Balance Rate Balance Rate ------- ------------- ------- ------- (In---- (Dollars in thousands) Noninterest bearing demand deposits $ 6,7038,763 $ 6,0307,370 Interest bearing demand deposits 11,956 2.43% 12,779 2.45%12,471 3.43% 13,716 2.97% Savings deposits 8,314 2.73 7,593 2.7311,018 2.71 11,340 2.72 Time deposits 26,056 4.68 29,912 4.916,974 4.98 7,446 3.93 ------- -------------- ------- --------- Total $53,029 3.27% $56,314 3.53%$39,226 2.74% $39,872 2.53% ======= ============== ======= =========
The following table presents the amount of F&M'sHastings Financial's time deposits of $100,000 or more by the time remaining until maturity as of April 30,December 31, 1995:
Maturity April 30,December 31, 1995 -------- -------------- (In----------------- (Dollars in thousands) Three months or less $ 350264 Over three through six months 1000 Over six through twelve months 100360 Over twelve months 5600 ------ Total $1,110$ 624 ======
Return On Equity And Assets - --------------------------- The following table sets forth certain performance ratios of F&MHastings Financial for the periods indicated:
Year ended April 30, ----------------------December 31, ----------------------- 1995 1994 ------ ---------- ---- Return on assets (net income divided by average total assets) 1.03% 0.90%1.37% 0.89% Return on equity (net income divided by average equity) 8.41% 8.22%12.98% 8.49% Dividend payout ratio (dividends declared per share divided by net income per share) 27.00% 25.60%27.78% 34.45% Equity to assets ratio (average equity divided by average assets) 12.21% 10.92%10.58% 10.47%
5250 60 INFORMATION ABOUT THE MANAGEMENT OF F&M F&M's Board Of Directors F&M currently has a Board of Directors consisting of seven persons, each serving for a term of one year. The following persons are serving on F&M's Board of Directors:
Year First Term Name Age(1) Elected Director Expires ---- ------ ---------------- ------- WENDELL B. BEARSS 65 1987 1996 Farmer H. ROBERT BRADLEY 77 1958 1996 Retired Farmer CAROL J. BRIDGE 56 1987 1996 Secretary-Treasurer, Rochester Telephone Company WILLIAM J. GORDON 60 1987 1996 President/CEO of F&M and Farmers & Merchants Bank J. FREDERICK HOFFMAN 73 1990 1996 Partner, Law firm of Hoffman, Luhman & Busch ROBERT E. PETERSON 65 1984 1996 Chairman of the Board of F&M/ Senior Partner, Law Firm of Peterson & Waggoner V. LORENE RAUSCHKE 73 1975 1996 Retired
------------------------- (1) As of October 31, 1995. Board Meetings And Committees The Board of Directors meets the second Wednesday of each month for regular meetings. Additional special meetings may also be held from time to time. During the year ended April 30, 1995 the Board of Directors met 12 times for regular and special meetings. The Board of Directors has the following committees:
Committee Members Function -------------------- -------------------- ----------------------------------------------------------- Trust All Directors Meets monthly after regular board meeting to review all trust activity and specific accounts. Loan William J. Gordon Meets on an as-needed basis to review and act upon loan Wendell B. Bearss requests of $50,000 or more. The committee also makes V. Lorene Rauschke recommendations to the full board of directors when Robert E. Peterson necessary. Asset & Liability William J. Gordon Meets monthly to discuss and monitor Farmers & Merchants Management V. Lorene Rauschke rate sensitive assets and liabilities. This committee also Wendell B. Bearss adjusts the rates of such assets and liabilities. The following F&M and/or Farmers and Merchants officers, who are not members of the Board of Directors, are also members of this committee: Michael R. Terrone, George R. Hoover, Harry J. Richter and Dean A. Dolph.
53 61 Community Reinvestment William J. Gordon Meets on an as needed basis to monitor Farmers & Merchants Act V. Lorene Rauschke compliance with the Community Reinvestment Act, the intent Wendell B. Bearss of which is to encourage financial institutions to assess and meet the credit needs of their local communities, including low to moderate income areas. The following F&M and/or Farmers and Merchants officers, who are not members of the Board of Directors are also members of this committee: Michael R. Terrone, George R. Hoover, Harry J. Richter and Dean A. Dolph. Salary Carol J. Bridge Meets annually to review bank staff evaluations and J. Frederick Hoffman and appraisals and to make wage adjustments. Michael R. Terrone, who is an officer of F&M and Farmers & Merchants but not a member of the Board of Directors, is also a member of this committee. Compliance & Audit Robert E. Peterson This committee is a temporary committee formed in August V. Lorene Rauschke 1993 to monitor compliance with the terms of a Memorandum Wendell B. Bearss of Understanding ("MOU") entered into with the Indiana Carol J. Bridge Department of Financial Institutions and the FDIC. The committee met monthly during the period that the MOU was in effect. The FDIC released Farmers & Merchants from the requirements of the MOU in June 1994 and the Indiana Department of Financial Institutions released Farmers & Merchants from the terms of the MOU in November 1994, at which time this committee became inactive. For more information about the MOU, see note 11 to the April 30, 1995 Consolidated Financial Statements of F & M Bancorp and Subsidiary.
Each director attended at least 75% of the aggregate of the meetings of the Board of Directors and the meetings of committees of the Board of Directors on which he/she served. Director Compensation During the twelve months prior to December 31, 1994, each director received an annual fee of $3,600 for serving on the Board of Directors. Members of the Loan Committee received an additional $1,000 for serving on that committee and members of the Compliance & Audit Committee received an additional $1,500. Executive Officers Of F&M The table below sets forth certain information with respect to the executive officers of F&M with additional information being provided in the following narrative section on each officer.
Name Age(1) Position with F&M ------------------------- ------ ----------------- Robert E. Peterson 65 Chairman of the Board William J. Gordon 60 President/CEO George R. Hoover 57 Secretary-Treasurer Michael R. Terrone 48 Vice President
------------------------- (1) As of October 31, 1995. 54 62 ROBERT E. PETERSON was first elected to F&M's Board of Directors in 1984 and became Chairman in June 1995. Mr. Peterson is a senior partner of the law firm of Peterson & Waggoner, where he has been affiliated for thirty years. He was an Indiana State Senator from 1961 to 1968 and from 1977 to 1980. He was Assistant Minority Leader during 1979 and 1980. He was also Fulton County Auditor from 1957 to 1960 and was a farmer from 1954 to 1956. Mr. Peterson is a veteran of the Korean War. He graduated from Purdue University in 1952 with a Bachelor of Science Degree in Agriculture and earned a Doctor of Jurisprudence degree in 1964 from Indiana University. He is a member of the Fulton County, Indiana State and American Bar Associations and was a member of the Indiana Bar Association's Board of Managers from 1983 to 1985. Mr. Peterson is a member of the First Baptist Church and is a former member of the State Board of Managers for the Judian Association of American Baptist Churches. He is a member and former lieutenant governor of the Rochester Kiwanis and is also a former president of the Indiana University Law Alumni Association. He is also a member of the Masonic Lodge, American Legion, VFW and Indiana Historical Society. WILLIAM J. GORDON started his banking career at Farmers & Merchants in October 1959 as a teller. He held the positions of Assistant Cashier, Cashier, Vice President and Senior Vice President before his appointment in June 1995 as President and CEO of F&M and Farmers & Merchants. He is a member and past president of the Rochester Rotary Club and is a member of the Rochester Elks Lodge, Rochester Moose Lodge, Rochester High School Athletic Boosters and the Rochester Chamber of Commerce. Mr. Gordon is a member of the First Christian Church, where he has served as a deacon and elder and is a 35 year member of the church choir. GEORGE R. HOOVER joined Farmers & Merchants as a teller in February 1969. He has served as Assistant Cashier and Cashier and was appointed to his present position of Vice President-Cashier of Farmers & Merchants in April 1984. He was appointed to the position of Secretary-Treasurer of F&M in September 1984. Mr. Hoover is a member of Grace United Methodist Church, where he is a member of the church choir and is secretary of the Administration Board. He previously served as financial secretary of Grace. MICHAEL R. TERRONE joined Farmers & Merchants as Assistant Cashier in July 1980. He was appointed to the position of Assistant Vice President of Farmers and Merchants in January 1985 and was appointed a Vice President of F&M in April 1988. Mr. Terrone is responsible for the overall daily operation of F&M, including teller and branch operations, bookkeeping and lending functions. Mr. Terrone has a Bachelor of Science Degree in Business Administration from the University of Maryland and is a graduate of the Graduate School of Banking at the University of Wisconsin. He is a current board member and past president of Lake Manitou Association, Inc. and is a current board member and vice president of the Rochester Athletic Booster Club. Mr. Terrone is a current board member of the Fulton Economic Development Commission. He is a past board member of the Rochester & Lake Manitou Chamber of Commerce and a past treasurer of the Rochester Kiwanis Club. He is also an instructor for the Junior Achievement of Fulton County. He is a member of St. Joseph Catholic Church. 55 63 Executive Compensation CASH COMPENSATION. No executive officer of F&M other than Richard Mitchell received more than $100,000 in salary and bonus payments during the year ended December 31, 1994. The following table sets forth certain information as to the cash compensation received by Richard Mitchell, who retired as President and CEO on June 20, 1995, during the nine months ended September 30, 1995 and the years ended December 31, 1994 and 1993.
SUMMARY COMPENSATION TABLE Name and All Other Principal Position Year Salary Bonus Compensation ------------------- ---- ------- ----- ------------ Richard Mitchell 1995 $46,042 $ 9,029 $25,000 (1) Former President/CEO 1994 92,086 9,208 4,600 (2) 1993 89,400 9,835 4,600 (2)
-------------------- (1) Represents a retirement bonus. (2) Represents fees received for serving on the Board of Directors and the Loan Committee. RETIREMENT PLAN. Farmers and Merchants sponsors a contributory target benefit pension plan covering substantially all employees who meet certain age and service requirements. Farmers and Merchants' contribution and expense for the Retirement Plan are determined annually by a formula as defined in the plan. After completion of five years of service, the Retirement Plan provides for a 100% vested interest. In general, distributions from the plan are made only at retirement, death, disability, termination of employment or termination of the Retirement Plan. The following table sets forth the amounts that are payable to persons in selected remuneration and service classifications under F&M's retirement plan: RETIREMENT PLAN TABLE ESTIMATED ANNUAL BENEFITS (1) (2) (3)
Years of Service ----------------------------------------------------------- Remuneration 15 20 25 30 35 ------------ -------- -------- -------- -------- ------- $25,000 $ 4,875 $ 6,500 $ 8,125 $ 9,750 $11,375 $50,000 10,500 14,000 17,500 21,000 24,500 $75,000 16,125 21,500 26,875 32,250 37,625 $100,000 21,750 29,000 36,250 43,500 50,570
-------------------- (1) Pension amounts shown under the foregoing table are computed on a straight-line annuity basis prior to deduction for Social Security benefits. There is no Social Security benefit offset. (2) The normal monthly retirement benefit at the normal retirement age (65), effective January 1, 1994 is 1.0% of the average monthly compensation multiplied by years of service (maximum of 35), plus .5% of average monthly compensation minus $833.33 ($10,000 annually) multiplied by years of service (maximum of 35). Average monthly compensation is the average monthly compensation for the highest five consecutive years which produce the highest monthly average within the last ten years. (3) Mr. Mitchell had 11 years of credited service at December 31, 1994 for the purposes of computing a benefit under this Retirement Plan. 56 64 CERTAIN TRANSACTIONS WITH F&M At April 30, 1995, certain directors and executive officers of Farmers & Merchants and members of the immediate families of such directors and executive officers were indebted to Farmers & Merchants in the aggregate amount of $47,926, constituting all indebtedness outstanding to directors, executive officers or their respective affiliates. Such indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons. All such loans were current at April 30, 1995 and are not considered to involve more than the normal risk of collectibility or to present other unfavorable features. No affiliate of F&M is currently indebted to F&M or was indebted to F&M at April 30, 1995. 57 65 F & M BANCORP58 HASTINGS FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSof Financial Condition and Results of Operations YEARS ENDED APRIL 30,DECEMBER 31, 1995, 1994 AND 1993 The followingThis discussion provides information about the Company'sconsolidated financial condition and results of operations which may not otherwise be apparent from the consolidated financial statements included elsewhere herein. This discussionof Hastings Financial Corporation (the "Corporation") and its subsidiary National Bank of Hastings (the "Bank"), and should be read in conjunction with the consolidated financial statements and the related footnotes. Earnings SummaryConsolidated Financial Statements. EARNINGS SUMMARY - ---------------- Consolidated net income for F & M Bancorp (the "Company")of the Corporation for the year ended April 30,December 31, 1995 totaled $626,000 ($111.12 per share),was $616,000. This represented an increase of $54,000 or 9%53% over the $572,000 ($101.55prior year's net income of $403,000. A comparison to 1993 net income of $412,000 further illustrates the significance of 1995's net income growth. The earnings per share) earned duringshare of $8.10 for the same period in 1994. Theyear ended 1995 was an improvement of 59% over the 1994 earnings were lower than 1993 earnings of $844,000 ($149.89 per share) by $272,000 or 32%. Cash dividends declared per share amounted to $30 inof $5.08. The year 1994 was a slight decrease from 1993's earnings per share of $5.23. Two often cited ratios for analysis of financial institutions are return on average assets (ROA) and return on average equity (ROE). ROA was 1.37%, .89% and .92% for the years ended December 31, 1995, and $26 in 1994 and 1993. Results Of Operations - 1995 Versus 1994 Net interest income1993 respectively. ROE for 1995 was $2,639,000, a decrease12.98%, 1994 was 8.49% and 1993 was 9.21%. RESULTS OF OPERATIONS: 1995 COMPARED TO 1994 - ---------------------- TOTAL INTEREST INCOME of $24,000 or 1%$3,005,000 for the calendar year 1995 was comparable to the 1994 year of $2,906,000. However, the mix of interest income shifted as more dollars came from loans (71% in) 1995 versus (63% in) 1994. This modest decrease in net interest income resulted from a decrease in interest income of $276,000 offset by a decrease in interest expense of $252,000. Although a small decrease in net interest income occurred in 1995 as compared to 1994, the net interest margin (on a tax equivalent basis) improved to 4.98% in 1995 as compared to 4.78% in 1994 duechange was primarily to a reduction in lower yielding earning assets and maturities of higher rate time deposits. The overall yield on average earning assets in 1995 was 8.05% as compared to 8.15% in 1994. The yields on loans and investment securities decreased. These decreases were partially offset by an increase in the yield on federal funds sold. In addition to a decrease in yields, average earning assets (on a tax equivalent basis) decreased nearly 4% or $2,292,000 as compared to 1994. However, the decrease was only attributable to federal funds sold as loans and investment securities had modest increases. The decrease in interest expense of $252,000 is partially attributable to a decrease in volume (accounting for $180,000) and partially attributable to a decline in interest rates paid (accounting for $72,000). Average interest-bearing liabilities declined $3,917,000 or nearly 8%, with time deposits decreasing $3,856,000. Overall rates paid on interest-bearing liabilities decreased from 3.96% in 1994 to 3.75% in 1995 with the decrease principally related to time deposits. Based on the current interest rate environment and the local competition for deposits, management anticipates the net interest margin may decline as higher yielding assets continue to pay down and are replaced with lower yielding assets. In addition, the competition for deposits may not allow for a similar decline in interest rates paid. 58 66 At April 30, 1995, net loans amounted to $31,338,000, an increase of 11% over net loans of $28,248,000 at April 30, 1994. The increase in loans was funded by a decrease in cash and cash equivalents and a decrease in securities held-to-maturity. Of the $3,090,000 increase in net loans, $2,527,000 was related to net growth in real estate loans. Management expects loan demand to continue as the local market has remained stable with little change in major employers and their employee bases. Securities totaled $24,127,000 at April 30, 1995 which represents a decrease of $1,963,000 or 8% from total securities of $26,090,000 at April 30, 1994. The decrease in securities is the result of proceedsincreased principal balances of loans. Interest income from maturities being usedsecurities decreased from $1,003,000 during 1994 to finance other needs and$771,000 for 1995, a change of 30%. Many of the securities in the portfolio were variable rate products that produced higher yields, resulting from interest rate markets rise from 1994 to 1995. However, this rise of interest rates could not due to the sale of securities. Total deposits at April 30, 1995 amounted to $51,424,000, a decrease of $2,167,000 or 4% over total deposits of $53,591,000 at April 30, 1994. This decrease was primarily through a $2,125,000 decrease in time deposits. The decrease in deposits was financed in part through a decrease in cash and cash equivalents and through the proceeds from maturities of investment securities. A portion ofoffset the decline in average balances of securities from 1994 to 1995. This was a conscious decision of management to move into higher yield earning assets (loans). INTEREST EXPENSE on deposits remained relatively flat from 1994 to 1995. Rates to depositors and total average deposit balances fluctuated little between the years. Growth of total deposits was a modest 1% from the 1994 year end to December 31, 1995. There was a small shift of depositors moving from shorter-term products to time deposits is believedcertificates but this did not measurably impact interest expense. PROVISION FOR LOAN LOSSES increased during 1995 to be attributablecorrespond to lower rates offered on new certificates of deposits as compared to local competition. Management believes that such run-off has been slowed or stabilized and increased net interest income as most of these deposits were invested in low-yielding overnight funds (federal funds sold). The provision forthe loan losses which was charged to operations was based on the growth of the loan portfolio, the amountindirect installment lending. 51 59 Management adopted Statement of charge-offs incurred and management's estimationFinancial Accounting Standards (SFAS) No. 114 Accounting by Creditors for Impairment of losses based on an evaluationa Loan, as amended by SFAS No. 118, effective January 1, 1995. The adoption of portfolio risk and economic factors. The provision for loan losses was $184,000 in 1995 as comparedthis pronouncement did not require any adjustment to $408,000 in 1994, or a decrease of $224,000. The decrease in the loan loss provision is partially a result of improved loss experience. Gross charge-offs in 1995 were $209,000 as compared to 1994 amounts totaling $358,000, or a decrease of $149,000. In 1994, one commercial credit incurred a charge-off of $200,000. At April 30, 1995, the allowance for loan losses. OTHER INCOME received a boost in 1995 though a $99,000 gain on a life insurance policy. Security exchanges although small, improved to net gains of $1,000 in 1995 versus net losses of $9,000 in 1994. The volume of securities calls and sales decreased from 1994 to 1995. OTHER EXPENSES were reduced from 1994 to 1995 primarily by two factors: the reduction of FDIC premiums that took place during 1995; and lower salaries, wages and benefit expenses in 1995 attributable to a modest reduction in workforce. FEDERAL INCOME TAX EXPENSE increased with the rise of income before income taxes. This increase was $643,000 or 2.01%partially offset by the $34,000 tax benefit associated with the nontaxable gain on the life insurance policy discussed above. RESULTS OF OPERATIONS: 1994 COMPARED TO 1993 - ---------------------- TOTAL INTEREST INCOME decreased from 1993's total of $2,917,000 to $2,906,000 in 1994, a decline of less than 1%. Conversely, the ratio of interest earning assets to total loans, comparedassets was 88% at December 31, 1993 and 90% at December 31, 1994. The mix of interest earning assets moved from securities of 47% (of total interest earning assets) at December 31, 1993 to $602,000 or 2.09%44% at December 31, 1994. Correspondingly the lending mix increased from 1993 to 1994. A common ratio used to determine the interest earning structure of a Bank is the loan to deposit ratio. At December 31, 1993 this ratio was 47%, at December 31, 1994 the ratio was 58%. THE AVERAGE RATES for loan and security portfolios were at lower yields (after tax adjustment) for the year 1994 versus 1993. The loan yields went from 9.62% in 1993 to 9.18% in 1994. Taxable securities yields decreased from 6.37% in 1993 to 5.78% in 1994. Tax-exempt securities yields increased from 5.43% in 1993 to 6.69% in 1994. INTEREST EXPENSE changed rather insignificantly from 1993 to 1994 as the total loans at April 30,expense went from $1,056,000 to $1,009,000, a decrease of 4%. The average balance of interest-bearing liabilities decreased minimally from 1993 to 1994 and the average rate decreased from 3.21% in 1993 to 3.10% in 1994. Non-performing loansThe change in rates resulted from favorable competitive factors within the local and national economies. PROVISION FOR LOAN LOSSES was increased in 1994 from to $838,000 (or 2.6%1993. During 1993 management made the decision to reduce the year end balance of total loans) at April 30, 1995 from $667,000 (or 2.3% of total loans) at April 30, 1994. Management believes the allowance for loan lossesloss reserve by not replenishing charged off loans. The purpose was to bring the December 31, 1993 balance in line with the favorable delinquency and non-accrual loan statistics at April 30, 1995 is adequate to absorb losses that may occur on these and other loans. Total non-interest income remained stable in 1995 as compared to 1994. Service charges on deposits decreased 3%, or $5,000 to $193,000 in 1995 from $198,000 in 1994. Total non-interestthe 1993 year end. The slight increase of provision expense increased $71,000 or 4% to $1,903,000 in 1995. This increaseduring 1994 was primarily a result of an increase in salaries and employee benefits of $40,000 or 4%, occupancy expense of $26,000 or 13% and other operating expenses of $45,000 or 23%, offset by a decrease of $35,000 or 63% in electronic data processing expenses due to certain capital lease obligations on computer equipment expiring in 1994. Income tax expense forloan growth during the year ended April 30, 1995 was $223,000,same year. 52 60 OTHER INCOME benefitted from an almost 11% increase of $75,000 or 51% from 1994. This increase is primarily due to an increase in income before income taxes in 1995 as compared to 1994. 59 67 Results Of Operations - 1994 Versus 1993 Net interest income for 1994 was $2,663,000, an increase of $9,000 or 0.3% from 1993. This modest increase in net interest income resulted from a decrease in interest expense of $434,000 and a decrease in interest income of $425,000. In addition, the net interest margin (on a tax equivalent basis) improved to 4.78%service charges in 1994 as compared to 4.74% in 1993. The overall yield earned on average earning assets in 1994 was 8.15% as compared to 8.87% in 1993. The 1994 yield on each category of earning assets declined from the 1993 levels. Average earning assets had a modest increase of $256,000 compared to the prior year. However, the mix shifted from higher earning loan assets (a decrease of $2,258,000) to lower earning assets such as investment securities and federal funds sold. The decrease in interest expense of $434,000primary reason for this is partially attributable to a decrease in volume (accounting for $116,000) and partially attributable to a decline in interest rates paid (accounting for $318,000). Average interest-bearing liabilities declined $969,000 or nearly 2%. The mix of the deposit base also shifted as average time deposits declined $2,850,000, which was offset by increases in the average balances in lower rate interest-bearing demand deposits and savings deposits. Overall rates paid on interest-bearing liabilities decreased from 4.73% in 1993 to 3.96% in 1994. The provision for loan losses which was charged to operations was based on the amount of charge-offs incurred and management's estimation of losses based on an evaluation of portfolio risk and economic factors. The provision for loan losses was $408,000 in 1994 compared with $86,000 in 1993, or an increase of $322,000. The increase in the loan loss provision is partially a result of increased charge-offs. Gross charge-offs in 1994 were $358,000 as compared to 1993 amounts totaling $157,000, or an increase of $201,000. In 1994, one commercial credit incurred a charge-off of $200,000. At April 30, 1994, the allowance for loan losses was $602,000 or 2.09% of total loans compared to $489,000 or 1.54% of total loans at April 30, 1993. Non-performing loans increased modestly to $667,000 at April 30, 1994 from $644,000 at April 30, 1993. Management believes the allowance for loan losses balance at April 30, 1994 is adequate to absorb losses that may occur on these and other loans. Total non-interest income remained relatively constant, declining by 5% from $313,000 in 1993 to $297,000 in 1994. However, service charges on deposits, the major component of non-interest income, increased 9% or $17,000 to $198,000 in 1994 from $181,000 in 1993. This is primarily due to an increase in transaction-based accounts. Total non-interest expense increased $58,000 or 3% to $1,832,000 in 1994. In 1994, losses on the salebalance and number of assets were $38,000 and no suchaccounts with service charges. Fees associated with these accounts remained relatively unchanged. Security losses were incurredrelatively unchanged from 1993 to 1994 while the volume of calls and sales of securities was also comparably flat from year to year. OTHER EXPENSES increased by 11% from 1993 to 1994. The primary factor for this was an 87% increase ($128,000) in 1993. Income taxpension and other employee benefits expense. Most other categories of expenses showed little change from 1993 to 1994. The increase in pension and employee benefits expense was primarily attributable to increased expense related to a reduction in the retirement age from 65 in 1993 to 60 in 1994 for the year ended April 30,Bank's Selective Retirement Plan. FEDERAL INCOME TAXES was reduced from $219,000 in 1993 to $138,000 in 1994, was $148,000, a decrease of $115,000 or 44% from 1993. This decrease is primarily attributable37%. Two factors contributed to a decrease inthis reduction of expense. The first being the reduced amount of income before income taxes in 1994 as compared toversus 1993. 60 68 LiquiditySecond is the impact of increased tax-exempt interest in 1994. LIQUIDITY: - ---------- The CompanyCorporation manages its primary liquidity position through the Bank. The purpose of liquidity management is to provide funding at the lowest possible cost for anticipatedfund loan demand, and/or deposit run-off that occurs inmeet the regular coursewithdrawal needs of business. Such sourcescustomers and provide for operating expenses. Sources of liquidity are:are cash and funds due from financial institutions, federal funds purchased, lines with correspondent bankssold, sale and/or maturity of securities classified as available for sale, maturities of securities held to maturity and maturitiesprincipal repayments on loans. Management believes its current liquidity level is sufficient to meet anticipated growth. The consolidated statements of cash flows indicates the concerted level of emphasis management has placed upon maximizing interest income from the securities held-to- maturity portfolio. At April 30, 1995, scheduled maturities over the next twelve months total $1,923,000. The Company manages a secondary liquidity position to provide funding in the event of unanticipated loan demand and/or deposit run-off. Management maintains approximately 12% or $2,775,000 of its securities portfolio as available-for-sale as of April 30, 1995. This designation provides additional liquidity to fund abnormal loan demand, or to manage unanticipated run-off of deposits. These securities are readily marketable as they are U.S. federal agency securities directly or indirectly guaranteed by the Federal government. The following is a brief description of the sources and uses of funds for the periods indicated: During the year ended April 30, 1995, there was a net decrease of $2,764,000 inearning assets. While cash and cash equivalents. The major usesequivalents have fluctuated from a high of cash during$8,240,000 at the period includedbeginning of 1993 to a low of $3,050,000 at year end 1994, management has been structuring its balance sheet to increase the fundingoverall yield of a $3,274,000 increaseinterest earning assets by investing in the origination of loans a $2,168,000 decrease in deposits,from the sale and a $1,488,000 purchasematurity of securities held-to-maturity. Major sources of funds consisted of: $1,027,000 from operating activities and maturing securities of $3,180,000. During the year ended April 30, 1994, there was a net decrease of $1,692,000 insecurities. Liquid assets include cash and cash equivalents. The major uses of cash during the period included the purchase ofequivalents, securities totaling $15,897,000available for sale and loans held for sale (of which there were none). Core deposits are defined as customer account balances that are loyal to a $2,312,000 decrease in deposits. Major sources ofparticular financial institution. Core deposits exclude public funds were: $1,098,000 from operating activities, maturing securities of $13,151,000 and a decline in loans of $2,524,000. During the year ended April 30, 1993, there was a net increase of $3,601,000 in cash and cash equivalents. The major use of cash during the period included the purchase of securities totaling $9,998,000. Major sources of funds were: $1,116,000 from operating activities, maturing securities of $9,280,000, a decline in loans of $544,000, and an increase ofbrokered deposits of $2,852,000.or "hot money."
1995 1994 ---- ---- Liquid Assets (in thousands) $ 8,514 $ 7,630 Core Deposits (in thousands) $ 39,718 $ 39,169 % change from prior year +1.40% +1.81%
53 61 69 Interest Rate SensitivityINTEREST RATE SENSITIVITY: - -------------------------- The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring an institution's interest rate sensitivity "gap."gap. An asset or liability is said to be interest rate sensitive within a specific time period, if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. The Bank uses several analyses to determine the optimal mix of maturities for interest-earning assets relative to interest-bearing liabilities. The predominate tool management utilizes is a Gap analysis. This Gap analysis is prepared routinely to illustrate the interest rate sensitivity of assets maturing and/or re-pricing within specified time frames versus liabilities due within the same time period. The following table illustrates the asset (liability)and liability funding gaps for selected time periods as of April 30, 1995. INTEREST SENSITIVITY GAP ANALYSISDecember 31, 1995 (in thousands).
Repricing Or Maturing Within -------------------------------------------------------------------------------- Within 4-6 7-12 1-5 Over 5 31 1-3 3-6 6-12 1-3 3-5 5+ All Month Months Months Months Years Years Years Others Total -------- -------- -------- -------- ------- ------- (Dollars in thousands)----- ------ ------ ------ ----- ----- ----- ------ ----- Interest-earning assets: Loans receivable, net of unearned income ASSETS Cash $ 1,6584,258 $ 4,258 Federal funds sold $ 2,600 2,600 Investments $ 390 $ 1,446 $ 6,448 $ 2,650 $ 1,488 12,422 Loans: Real estate 1,266 $ 1 23 130 504 1,425 8,900 12,249 Installment 1 18 100 2,565 3,665 5,871 12,220 Commercial 226 92 127 87 77 28 58 695 LESS: AFLL (200) (200) Fixed and other assets 1,896 1,896 --------- --------- -------- --------- --------- --------- --------- --------- --------- Total assets 4,092 94 558 1,763 9,594 7,768 16,317 5,954 46,140 LIABILITIES DDA - noninterest 8,863 8,863 NOW and MMDA 13,539 13,539 Savings 10,648 10,648 CDs 1,018 845 2,238 1,748 1,225 210 108 7,392 Other liabilities 784 784 --------- --------- -------- --------- --------- --------- --------- --------- --------- 1,018 25,032 2,238 1,748 1,225 210 108 9,647 41,226 Capital 4,914 4,914 --------- --------- -------- --------- --------- --------- --------- --------- --------- 1,018 25,032 2,238 1,748 1,225 210 108 14,561 46,140 --------- --------- -------- --------- --------- --------- --------- --------- --------- Period GAP $ 3,074 $(24,938) $ (1,680) $ 15 $ 8,369 $ 7,558 $ 16,209 $ (8,607) $ 0 $ 3,517 $ 9,202 $17,604 $31,981 Investment securities held-to-maturity: Taxable 251 0 1,252 12,989 0 14,492 Tax exempt 0 0 421 1,637 4,802 6,860 Investment securities available-for-sale: Taxable 0 0 0 2,775 0 2,775 -------- -------- -------- -------- ------- ------- Total interest-earning assets 1,909 0 5,190 26,603 22,406 56,108 Interest-bearing liabilities: Demand deposits (1) 11,418 0 0 0 0 11,418 Savings deposits (1) 7,799 0 0 0 0 7,799 Time deposits: Less than $100,000 3,951 3,972 5,453 10,911 22 24,309 $100,000 or more 350 100 100 560 0 1,110 -------- -------- -------- -------- ------- ------- Total interest-bearing liabilities 23,518 4,072 5,553 11,471 22 44,636 -------- -------- -------- -------- ------- ------- Rate sensitivity gap $(21,609) $ (4,072) $ (363) $ 15,132 $22,384 $11,472========= ======== ======== ======== ======== ======= ======= Cumulative gap $(21,609) $(25,681) $(26,044) $(10,912) $11,472========= ========= ======== ======== ======== ======= ======= Cumulative gap as a percentage of earning assets (38.51)GAP $ 3,074 $(21,864) $(23,544) $(23,529) $ (15,160) $ (7,602) $ 8,607 $ 0 $ 0 Period GAP (%) 6.66% (54.05)% (45.77)(3.64)% (46.42).03% 18.14% 16.38% 35.13% (18.65)% (19.45)0% Cumulative GAP (%) 6.66% (47.39)% 20.44% ======== ======== ======== ======= =======(51.03)% (51.00)% (32.86)% (16.48)% 18.65% 0% 0%
54 62 CAPITAL MANAGEMENT: - -------------------------- (1) Savings and interest-bearing demand deposit accounts are subject to immediate withdrawal and may be repriced on an immediate basis. Therefore, these accounts are shown within the 3 months category. However, based on past experience, management anticipates the majority of these accounts to remain with the Company beyond one year. 62 70 Capital Management------------------- Total shareholders' equity was $7,397,000$4,914,000 as of April 30, 1995,December 31, 1995. This represents an increase over the prior year of $357,000 over totalDecember 31, 1994 of 7%. This was accomplished while increasing the cash dividend from $1.75 during 1994 to $2.25 during 1995. The primary component of the change in shareholders' equity is the net income for the year. Secondarily, the year of $7,040,0001995 benefitted from a positive turnaround for the majority of securities classified as of April 30, 1994. The increase in total shareholders' equity wasavailable for sale. Restrictions exist due to 1995 net income of $626,000 partially offset by dividends declared of $169,000. In addition, the overall increase in equity was offset by the effects of SFAS No. 115, Accounting for Certain Debt and Equity Securities adopted by the Company on April 30, 1994. The effect of accounting for securities available-for-sale under SFAS No. 115 decreased equity $100,000, net of tax of $65,000, through an increase in the unrealized loss on securities available-for-sale. Cash dividends per common share outstanding increased 15% to $30 per share in 1995 from $26 per share in 1994. Restrictions existregulatory guidelines imposed upon all financial institutions regarding the Bank's ability of the subsidiary bank to transfer funds to the CompanyCorporation in the form of cash dividends, loans or advances. (See Note 1 to the consolidated financial statements.) These restrictions have had no majorsignificant impact on the Company'sCorporations dividend policy or operations and are not anticipated to have any major the impact in the future. The Company's bankCorporation's subsidiary Bank remains above the minimum capital requirements at April 30, 1995 forlevels required by regulatory agencies to meet the definition of a well capitalized Bank. The banking regulators may alter minimum capital requirements as a result of revising their internal policies and their rating of the Corporation's subsidiary bank. At April 30,As of December 31, 1995, management is not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have a material adverse effect on the Company'sCorporations liquidity, capital managementresources or operations. InflationUnder risk-based capital guidelines issued by the Federal Reserve Board, the Corporation and its subsidiary bank are required to maintain a minimum risk-based capital ratio of 8% and a minimum leverage ratio of 4% as of December 31, 1995. While risk-based capital guidelines consider on-balance-sheet and off-balance-sheet risk, the minimum leverage ratio measures capital in relation to total on-balance- sheet assets. The components of total risk-based capital are tier 1 capital and tier 2 capital. The definition of capital, used in the leverage ratio, is identical to tier 1 capital under risk-based capital guidelines. Tier I capital is total shareholders' equity less intangible assets. Tier 2 capital includes total allowance for loan losses up to a maximum of 1.25% of risk-weighted assets. The net unrealized gain (loss) on securities available for sale, net of tax, is not considered for meeting regulatory capital requirements. The following table provides the minimum regulatory capital requirements and the Corporation's actual capital ratios at December 31, 1995.
Minimum Regulatory Corporation's Capital Requirements Actual Capital Ratio Type of Capital Ratio at December 31, 1995 at December 31, 1995 --------------------- -------------------- -------------------- Ratio of tier 1 capital to weighted-risk assets 4% 17.45% Ratio of total capital to weighted-risk assets 8% 18.16% Leverage ratio 4% 10.66%
55 63 THE IMPACT OF INFLATION AND CHANGING PRICES: - -------------------------------------------- For a financial institution, the effects of price changes and inflation can vary substantially. Inflation affects the growth of total assets, but it is difficult to assess its impact since neither the timing nor the magnitude of the changes in the consumer price index (CPI) coincides with changes in interest rate.rates. The price of one or more of the important components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding affect on interest rates or upon the cost of those goods and services normally purchased by the Corporation. In years of high inflation and high interest rates, intermediate and long-term fixed interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans,loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the reverse situation may occur. 6356 71 F&M BANCORP AND SUBSIDIARY64 HASTINGS FINANCIAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS CONTENTS REPORT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS - April 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . F-3 CONSOLIDATED STATEMENTS OF INCOME - Years ended April 30,December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - Years ended April 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . .F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS - Years ended April 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
F-1 7265 HASTINGS FINANCIAL CORPORATION Hastings, Michigan CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 CONTENTS REPORT OF INDEPENDENT AUDITORS............................................F-3 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS..........................................F-4 CONSOLIDATED STATEMENTS OF INCOME....................................F-5 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY...............................................F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS................................F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........................F-9 F-2 66 REPORT OF INDEPENDENT AUDITORS Board of Directors F&M Bancorp Rochester, Indianaand Shareholders Hastings Financial Corporation Hastings, Michigan We have audited the accompanying consolidated balance sheets of F&M BancorpHastings Financial Corporation (the Company) and Subsidiary"Corporation") as of April 30,December 31, 1995 and 1994 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the two years then ended. These consolidated financial statements are the responsibility of the Company'sCorporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of the Corporation for the year ended December 31, 1993, were audited by other auditors whose report dated January 14, 1994 expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of F&M Bancorp and SubsidiaryHastings Financial Corporation as of April 30,December 31, 1995 and 1994, and the results of theirits operations and theirits cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the CompanyCorporation changed its method of accounting for income taxes effective May 1, 1993 and for securities effective April 30, 1994.January 1, 1994 to conform to new accounting guidance. Crowe, Chizek and Company South Bend, Indiana July 7, 1995, except for Note 14, as to which the date is September 11, 1995 F-2LLP Grand Rapids, Michigan January 5, 1996 F-3 73 F&M BANCORP AND SUBSIDIARY67 HASTINGS FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS April 30,December 31, 1995 and 1994
1995 1994 ---- ---- ASSETS Cash and due from banks (Note 10)2) $ 1,813,7474,258,464 $ 2,677,5193,051,689 Federal funds sold - 1,900,000 --------------- -------------- Cash2,600,000 ------------ ------------ Total cash and cash equivalents 1,813,747 4,577,5196,858,464 3,051,689 Securities available-for-saleavailable for sale (Note 2) 2,774,687 2,939,6873) 1,655,233 4,577,838 Securities held-to-maturityheld to maturity (fair value of $20,740,000$10,659,280 in 1995 and $22,826,000$12,587,671 in 1994) (Note 2) 21,352,059 23,150,580 Total loans3) 10,766,614 13,292,173 Loans (Note 3) 31,980,708 28,849,5654) 25,163,754 23,329,596 Allowance for loan losses (Note 4) (643,008) (602,038) -------------- ------------- Net loans 31,337,700 28,247,5275) (200,031) (175,761) ------------ ------------ 24,963,723 23,153,835 Premises and equipment, net (Note 5) 869,768 891,0756) 1,026,331 782,685 Accrued interest receivable 688,273 703,490357,578 420,298 Other assets 350,184 439,279 --------------- --------------(Note 9) 511,814 518,466 ------------ ------------ $ 59,186,41846,139,757 $ 60,949,157 =============== ==============45,796,984 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Noninterest-bearing demand $ 6,787,5058,863,243 $ 6,350,484 Interest-bearing8,566,800 NOW and money market 13,539,396 13,395,508 Savings 10,647,428 11,083,248 Certificates of deposit (Note 6) 44,636,343 47,240,869 --------------- -------------- 51,423,848 53,591,3537) 7,391,487 6,912,035 ------------ ------------ 40,441,554 39,957,591 Federal funds purchased 600,000 Accrued interest payable 261,448 258,714101,989 87,830 Other liabilities 103,971 59,022 --------------- -------------- 51,789,267 53,909,089(Note 9) 682,341 580,371 ------------ ------------ Total liabilities 41,225,884 41,225,792 Commitments off-balance sheet risk and contingencies (Notes 10 and 14) Shareholders' equity Common stock: nostock, $1 par value; 6,000value - authorized 400,000 shares; issued and outstanding 75,463 shares authorizedin 1995 and issued 600,000 600,000 Additional paid-in capital 1,200,000 1,200,00078,367 shares in 1994 75,463 78,367 Capital surplus 590,581 748,849 Retained earnings 5,863,967 5,407,006 Treasury stock, at cost, 367 shares (130,750) (130,750)(Note 11) 4,252,116 3,806,197 Net unrealized loss on securities available-for-sale,available for sale, net of tax of $89,247 in$2,208 and $32,054 for 1995 and $24,125 in 1994, (136,066) (36,188) --------------- -------------- 7,397,151 7,040,068 --------------- --------------respectively (4,287) (62,221) ------------ ------------ 4,913,873 4,571,192 ------------ ------------ $ 59,186,41846,139,757 $ 60,949,157 =============== ==============
See accompanying notes to consolidated financial statements. F-3 74 F&M BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years ended April 30, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- (Unaudited) INTEREST INCOME Interest and fees on loans $ 2,933,141 $ 3,078,959 $ 3,469,739 Interest and dividends on securities Taxable 1,035,418 1,120,040 1,242,375 Non-taxable 373,686 312,650 265,853 Interest on federal funds sold 39,766 145,946 104,710 -------------- ------------- ------------- 4,382,011 4,657,595 5,082,677 INTEREST EXPENSE Deposits (Note 6) 1,736,585 1,988,969 2,396,527 Other 6,176 5,310 31,596 -------------- ------------- ------------- 1,742,761 1,994,279 2,428,123 -------------- ------------- ------------- NET INTEREST INCOME 2,639,250 2,663,316 2,654,554 Provision for loan losses (Note 4) 183,615 408,231 86,000 -------------- ------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,455,635 2,255,085 2,568,554 Other income Service charges on deposits 192,875 198,290 181,190 Other service charges and fees 70,630 48,366 55,091 Rental income 17,107 16,941 17,702 Other income 15,968 33,522 58,849 -------------- ------------- ------------- 296,580 297,119 312,832 Other expenses Salaries and employee benefits (Note 8) 1,099,850 1,059,701 1,032,047 Occupancy expense 233,085 207,091 230,579 FDIC assessment 134,445 142,981 133,780 Electronic data processing services 20,554 55,249 29,919 Advertising and marketing 37,028 36,208 39,140 Supplies and postage expense 90,897 95,909 75,238 Loss on sale of assets 45,147 37,995 - Other operating expenses 242,201 197,131 233,451 -------------- ------------- ------------- 1,903,207 1,832,265 1,774,154 -------------- ------------- ------------- INCOME BEFORE INCOME TAX EXPENSE 849,008 719,939 1,107,232 Income tax expense (Note 9) 223,057 147,910 262,900 -------------- ------------- ------------- NET INCOME $ 625,951 $ 572,029 $ 844,332 ============== ============= ============= Earnings per common share (Note 1) $ 111.12 $ 101.55 $ 149.89 ============= ============= =============45,796,984 ============ ============
See accompanying notes to consolidated financial statements. F-4 75 F&M BANCORP AND SUBSIDIARY68 HASTINGS FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended April 30, 1995, 1994 and 1993
Net Unrealized Loss Additional on Securities Total Common Paid-In Retained Treasury Available- Shareholders' Stock Capital Earnings Stock For-Sale Equity ----- ------- -------- ----- -------- ------ Balances, May 1, 1992 (unaudited) $ 600,000 $ 1,200,000 $ 4,283,561 $ (130,750) $ - $ 5,952,811 Cash dividends ($26 per share) (unaudited) - - (146,458) - - (146,458) Net income (unaudited) - - 844,332 - - 844,332 ---------- ------------- ------------- ----------- ---------- ------------ Balances, April 30, 1993 (unaudited) 600,000 1,200,000 4,981,435 (130,750) - 6,650,685 Cash dividends ($26 per share) - - (146,458) - - (146,458) Net income - - 572,029 - - 572,029 Effect of adopting State- ment of Financial Accounting Standards No. 115, as of April 30, 1994 - - - - (36,188) (36,188) ---------- ------------- ------------- ----------- --------- ----------- Balances, April 30, 1994 600,000 1,200,000 5,407,006 (130,750) (36,188) 7,040,068 Cash dividends ($30 per share) - - (168,990) - - (168,990) Net income - - 625,951 - - 625,951 Net change in unrea- lized loss on securities available-for-sale - - - - (99,878) (99,878) ---------- ------------- ------------- ----------- --------- ----------- Balances, April 30, 1995 $ 600,000 $ 1,200,000 $ 5,863,967 $ (130,750) $ (136,066) $ 7,397,151 ========== ============= ============= ========== ========== ============
See accompanying notes to consolidated financial statements. F-5 76 F&M BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended April 30, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 625,951 $ 572,029 $ 844,332 Adjustments to reconcile net income to net cash from operating activities Depreciation 72,777 73,357 107,139 Provision for loan losses 183,615 408,231 86,000 Net amortization (accretion) on securities 106,661 72,642 95,712 Loss on sale of premises and equipment - 31,806 - Loss on sale of foreclosed assets 45,147 6,189 - Change in accrued interest receivable 15,217 135,419 98,344 Change in other assets (69,710) (23,182) (152,027) Change in accrued interest payable 2,734 (45,753) (53,878) Change in other liabilities 44,949 (132,269) 90,281 ------------- ------------- -------------- Total adjustments 401,390 526,440 271,571 ------------- -------------- -------------- Net cash from operating activities 1,027,341 1,098,469 1,115,903 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of securities held-to-maturity 3,180,000 - - Proceeds from maturities of securities - 13,150,619 9,280,000 Purchase of securities held-to-maturity (1,488,140) - - Purchase of securities - (15,897,499) (9,998,165) Loans made to customers and principal collections, net (3,273,788) 2,524,431 543,904 Proceeds from sale of property and equipment - 1,100 - Property and equipment expenditures (51,470) (170,274) (68,409) Proceeds from sale of foreclosed real estate 178,780 59,811 22,200 ------------- -------------- -------------- Net cash from investing activities (1,454,618) (331,812) (220,470) CASH FLOWS FROM FINANCING ACTIVITIES Change in deposits (2,167,505) (2,311,911) 2,852,420 Dividends paid (168,990) (146,458) (146,458) ------------- -------------- -------------- Net cash from financing activities (2,336,495) (2,458,369) 2,705,962 ------------- -------------- -------------- Net change in cash and cash equivalents (2,763,772) (1,691,712) 3,601,395 Cash and cash equivalents at beginning of year 4,577,519 6,269,231 2,667,836 ------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,813,747 $ 4,577,519 $ 6,269,231 ============= ============== ============== Supplemental disclosures of cash flow information Cash paid during the year for Interest $ 1,740,027 $ 2,040,032 $ 2,482,001 Income taxes 209,000 258,980 225,610
See accompanying notes to consolidated financial statements. F-6 77 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF REPORTING: The accompanying consolidated financial statements include the accounts of F&M Bancorp ("the Company") and its wholly- owned subsidiary, Farmers & Merchants Bank of Rochester, Indiana ("the Bank"). All significant intercompany balances and transactions have been eliminated. SECURITIES: At April 30, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting For Certain Investments in Debt and Equity Securities." Securities are now classified into held-to-maturity, available-for-sale and trading categories. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity, and are reported at amortized cost. Available-for-sale securities are those the Company may decide to sell if needed for liquidity, asset-liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains and losses included as a separate component of shareholders' equity, net of tax. Trading securities are bought principally for sale in the near term, and are reported at fair value with unrealized gains and losses included in earnings. Prior to April 30, 1994, securities were reported at amortized cost. The adoption of SFAS No. 115 decreased equity, net of tax, by $36,188 at April 30, 1994. Realized gains and losses resulting from the sale of securities are computed by the specific identification method. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings. INTEREST INCOME ON LOANS: Interest income on loans is calculated using the simple interest method on daily balances of the principal amounts outstanding. When serious doubt exists as to collectibility of a loan, the accrual of interest is discontinued. LOAN FEES AND COSTS: Loan fees and related origination costs are netted and deferred under SFAS No. 91. The net deferral is included as part of loans and recognized in interest income over the loan term on the level yield method. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses represents that amount which management estimates is adequate to provide for losses on existing loans, based on an evaluation of the loan portfolio and prior loan loss experience. The evaluation, which is necessarily subjective, takes into consideration such factors as changes in the nature and volume of the loan portfolio, the level and seriousness of delinquencies and problem loans, and current economic conditions which may affect the borrowers' ability to pay. (Continued) F-7 78 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The allowance is established through a provision for loan losses charged to expense. The allowance is reduced by charging off loans deemed uncollectible by management. After a loan is charged off, collection efforts continue, and any recoveries of loans previously charged off are added to the allowance. CONCENTRATIONS OF CREDIT RISK: The Company grants commercial, real estate and consumer loans to customers located primarily in North Central Indiana. Commercial loans make up approximately 21% of the loan portfolio and are secured by both real estate and business assets. These loans are generally expected to be repaid from cash flow from operations of businesses. Real estate loans make up approximately 59% of the loan portfolio and are secured by both commercial and residential real estate. Installment loans make up approximately 20% of the loan portfolio and are primarily secured by consumer assets. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed principally by the straight-line method over the estimated useful life of the asset. Maintenance and repairs are expensed and major improvements are capitalized. OTHER REAL ESTATE OWNED: Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at fair value at the date of acquisition. Any reduction to fair value from the carrying value of the related loan at the time of acquisition is accounted for as a loan loss and charged against the allowance for loan losses. After acquisition, a valuation allowance is recorded through a charge to income for the amount of estimated selling costs. Valuations are periodically performed by management and valuation allowances are adjusted through a charge to income for changes in fair value or estimated selling costs. Other real estate owned amounted to $-0- and $128,000 at April 30, 1995 and 1994, respectively. INCOME TAXES: The Company and its subsidiary file consolidated federal and state income tax returns. Effective May 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 109. The Company records income tax expense based on the amount of taxes due on its tax return plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using enacted tax rates. Previously, the Company computed deferred taxes for the tax effects of timing differences between financial reporting and tax return income. The effect of the adoption of SFAS No. 109 as of May 1, 1993 was not material. CASH AND CASH EQUIVALENTS: Cash and cash equivalents are defined to include the Company's cash on hand, its demand deposits in other institutions and federal funds sold. The Company reports net cash flows for customer loan and deposit transactions. (Continued) F-8 79 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) DIVIDEND RESTRICTION: The Company's subsidiary bank is subject to banking regulations which require the maintenance of certain capital levels and which may limit the amount of dividends which may be paid. EARNINGS PER COMMON SHARE: Earnings and dividends per common share have been computed based on the weighted average number of shares outstanding during the periods presented. The number of shares used in the computation of earnings per common share was 5,633 for all periods presented. NOTE 2 - SECURITIES The amortized cost and fair value of securities as presented on the consolidated balance sheets are as follows: Securities available-for-sale at April 30, 1995
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Government corporations and agencies $ 3,000,000 $ - $ (225,313) $ 2,774,687 ============== ============== ============= ============== Securities held-to-maturity at April 30, 1995 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Government corporations and agencies $ 13,988,129 $ - $ (590,129) $ 13,398,000 Obligations of states and political subdivisions 6,860,651 104,534 (132,185) 6,833,000 Corporate notes 503,279 5,721 - 509,000 -------------- -------------- -------------- -------------- $ 21,352,059 $ 110,255 $ (722,314) $ 20,740,000 ============== ============== ============= ============== Securities available-for-sale at April 30, 1994 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Government corporations and agencies $ 3,000,000 $ - $ (60,313) $ 2,939,687 ============== ============== ============= ==============
(Continued) F-9 80 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 2 - SECURITIES (Continued) Securities held-to-maturity at April 30, 1994
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Treasury securities $ 500,048 $ 952 $ - $ 501,000 U.S. Government corporations and agencies 15,068,663 39,142 (305,805) 14,802,000 Obligations of states and political subdivisions 6,819,063 98,061 (157,124) 6,760,000 Corporate notes 762,806 194 - 763,000 -------------- -------------- ------------- -------------- $ 23,150,580 $ 138,349 $ (462,929) $ 22,826,000 ============== ============== ============= ==============
The amortized cost and fair value of debt securities at April 30, 1995, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-Sale Held-to-Maturity . . . . Securities . . . . . . . . Securities . . . . Amortized Fair Amortized Fair Cost Value Cost Value ---- ----- ---- ----- Due in one year or less $ - $ - $ 1,923,838 $ 1,912,000 Due after one year through five years 3,000,000 2,774,687 14,625,943 14,051,000 Due after five years through ten years - - 2,549,222 2,554,000 Due after ten years - - 2,253,056 2,223,000 -------------- -------------- -------------- -------------- $ 3,000,000 $ 2,774,687 $ 21,352,059 $ 20,740,000 ============== ============== ============== ==============
There were no sales of securities during the period May 1, 1992 through April 30, 1995. As of April 30, 1995 and 1994, investments in debt securities with an amortized cost of approximately $489,000 and $519,000, respectively, were pledged to secure public deposits. (Continued) F-10 81 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 3 - LOANS Loans as presented on the consolidated balance sheets are comprised of the following classifications:
1995 1994 ---- ---- Real estate loans $ 18,953,374 $ 16,426,868 Commercial loans 6,809,529 6,711,319 Installment loans 6,217,805 5,711,378 -------------- -------------- $ 31,980,708 $ 28,849,565 ============== ==============
At April 30, 1995 and 1994, loans on nonaccrual status totaled approximately $646,000 and $527,000, respectively. Interest income not recognized on these loans totaled approximately $59,000, $57,000 and $35,000 during 1995, 1994 and 1993, respectively. NOTE 4 - ALLOWANCE FOR LOAN LOSSES A summary of the activity in the allowance for loan losses for the years ended April 30, 1995, 1994 and 1993 is as follows:
1995 1994 1993 ---- ---- ---- Balance, beginning of year $ 602,038 $ 488,773 $ 491,052 Provision for loan losses 183,615 408,231 86,000 Loans charged-off (209,080) (358,274) (156,784) Recoveries on loans previously charged-off 66,435 63,308 68,505 -------------- -------------- -------------- Balance, end of year $ 643,008 $ 602,038 $ 488,773 ============== ============== ==============
(Continued) F-11 82 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 5 - PREMISES AND EQUIPMENT, NET The following is a summary of premises and equipment by major category as of April 30:
1995 1994 ---- ---- Land $ 76,200 $ 76,200 Buildings and improvements 1,171,650 1,142,745 Furniture and equipment 591,659 569,094 -------------- -------------- 1,839,509 1,788,039 Accumulated depreciation (969,741) (896,964) -------------- -------------- $ 869,768 $ 891,075 ============== ==============
NOTE 6 - INTEREST-BEARING DEPOSITS Total interest-bearing deposits as presented on the consolidated balance sheets are comprised of the following classifications:
1995 1994 ---- ---- Interest-bearing demand $ 11,417,850 $ 11,417,547 Savings 7,798,904 8,279,159 Time In denominations under $100,000 24,309,248 26,917,309 In denominations of $100,000 or more 1,110,341 626,854 -------------- -------------- $ 44,636,343 $ 47,240,869 ============== ==============
Interest expense on deposits for the years ended April 30, is summarized as follows:
1995 1994 1993 ---- ---- ---- Interest-bearing demand $ 290,235 $ 312,926 $ 342,360 Savings 227,050 207,059 217,867 Time 1,219,300 1,468,984 1,836,300 -------------- -------------- -------------- $ 1,736,585 $ 1,988,969 $ 2,396,527 ============== ============== ==============
(Continued) F-12 83 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 7 - RELATED PARTY TRANSACTIONS Certain directors and executive officers of the Company, including associates of such persons, are loan customers of the Bank. As of April 30, 1995 and 1994, there were no such loans aggregating $60,000 or more with any director, executive officer or their related interests. NOTE 8 - EMPLOYEE BENEFITS The Bank sponsors a contributory target benefit pension plan covering substantially all employees who meet certain age and service requirements. The Bank's contribution and expense for the plan is an amount determined annually by a formula (as defined in the plan). The plan provides for 100% vested interest after completion of seven years of service. In general, distributions from the plan are made only at retirement, death, disability, termination of employment, or termination of the plan. Pension plan expense was $101,542, $70,255 and $77,362 for the years ended April 30, 1995, 1994 and 1993, respectively. NOTE 9 - INCOME TAXES Income tax expense is summarized as follows:
1995 1994 1993 ---- ---- ---- Federal Current $ 168,913 $ 114,932 $ 183,933 Deferred (20,127) (20,479) (16,654) ----------- ----------- ---------- 148,786 94,453 167,279 State Current 79,794 62,125 103,705 Deferred (5,523) (8,668) (8,084) ----------- ----------- ---------- 74,271 53,457 95,621 ------------ ------------ ----------- $ 223,057 $ 147,910 $ 262,900 ============ ============ ===========
The components of the net deferred tax asset recorded on the consolidated balance sheets as of April 30, 1995 and 1994 are as follows. No valuation allowance was required. (Continued) F-13 84 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 9 - INCOME TAXES (Continued)
1995 1994 ---- ---- Deferred tax assets Bad debts $ 208,866 $ 191,538 Net unrealized losses on securities available-for-sale 89,247 24,125 Other 10,200 - ----------- ----------- Total deferred tax assets 308,313 215,663 Deferred tax liabilities Depreciation (54,805) (54,805) Franchise tax (15,550) (13,672) ---------- ---------- Total deferred tax liabilities (70,355) (68,477) ---------- ---------- Net deferred tax asset $ 237,958 $ 147,186 =========== ===========
The difference between income tax expense shown on the consolidated statements of income and amounts computed by applying the statutory federal income tax rate to income before income tax expense are as follows:
1995 1994 1993 ---- ---- ---- Income taxes computed at statutory federal rate (34% in 1995, 1994 and 1993) $ 288,663 $ 244,779 $ 376,459 Increase (decrease) in taxes resulting from Tax-exempt income (132,173) (123,614) (111,918) Non-deductible interest expense 14,016 12,500 10,750 State tax, net of federal income tax effect 49,019 35,282 63,110 Other 3,532 (21,037) (75,501) ----------- ---------- ---------- $ 223,057 $ 147,910 $ 262,900 ============ =========== ===========
NOTE 10 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES The Company is a party to financial instruments with off-balance-sheet risk in the ordinary course of business to meet financing needs of its customers. These financial instruments include commitments to make loans, unused lines of credit and standby letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans, unused lines of credit and standby letters of credit is represented by the contractual amount of those instruments. The Company follows the same credit policy to make such commitments as is followed for those loans recorded in the financial statements. (Continued) F-14 85 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 10 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES (Continued) As of April 30, 1995 and 1994, commitments to make loans and unused lines of credit amounted to approximately $1,908,000 and $3,115,000, respectively, and commitments under outstanding standby letters of credit amounted to approximately $49,000 for both periods. Since many commitments to make loans and standby letters of credit expire without being used, the amount does not necessarily represent future cash commitments. No losses are anticipated as a result of these transactions. Collateral obtained upon exercise of the commitment is determined using management's credit evaluation of the borrower and may include real estate, vehicles, business assets, deposits and other items. The Company was required to have approximately $414,000 and $372,000 of cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve requirements at April 30, 1995 and 1994, respectively. These balances do not earn interest. The Company is a party to various legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial position of the Company. NOTE 11 - MEMORANDUM OF UNDERSTANDING (MOU) AND RELEASE FROM MOU On June 16, 1992, the Bank entered into a Memorandum of Understanding with the Indiana Department of Financial Institutions (IDFI) and the Federal Deposit Insurance Corporation (FDIC). The MOU set forth provisions including drafting or revising certain bank policies, enhancing credit practices and loan documentation, adopting a methodology for the review of the adequacy of the allowance for loan losses and addressing certain other matters. Management believes it has substantially complied with these matters. As of June 17, 1994, the FDIC released the Bank from the requirements of the MOU and the FDIC notified the IDFI of that release. As of November 3, 1994, the IDFI also released the Bank from the requirements of the MOU. (Continued) F-15 86 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 12 - PARENT COMPANY ONLY FINANCIAL STATEMENTS Presented below are condensed financial statements for the parent company only, F&M Bancorp. CONDENSED BALANCE SHEETS April 30, 1995 and 1994
1995 1994 ---- ---- ASSETS Cash and cash equivalents $ 45,363 $ 33,598 Investment in subsidiary bank 7,351,788 7,006,470 -------------- -------------- $ 7,397,151 $ 7,040,068 ============== ============== SHAREHOLDERS' EQUITY Common stock $ 600,000 $ 600,000 Additional paid-in capital 1,200,000 1,200,000 Retained earnings 5,863,967 5,407,006 Treasury stock (130,750) (130,750) Net unrealized loss on securities available-for-sale, net of tax (136,066) (36,188) ------------- ------------- $ 7,397,151 $ 7,040,068 ============== ==============
(Continued) F-16 87 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 12 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued) CONDENSED STATEMENTS OF INCOME Years ended April 30,December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- Operating income Interest income $ 906 $ 644 $ 402 Dividends from subsidiaryLoans, including fees $2,137,046 $1,833,047 $1,798,363 Securities U.S. Treasury and federal agencies 588,870 751,496 764,527 State and political subdivisions 154,528 192,068 149,243 Other 27,803 59,977 129,302 Federal funds sold 97,000 69,652 75,742 ---------- ---------- ---------- 3,005,247 2,906,240 2,917,177 Interest expense (Note 7) 1,075,146 1,009,460 1,056,435 ---------- ---------- ---------- NET INTEREST INCOME 1,930,101 1,896,780 1,860,742 Provision for loan losses (Note 5) 34,030 2,775 ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,896,071 1,894,005 1,860,742 Other income (loss) Service charges 332,084 308,329 278,992 Security sales or calls, net gain (loss) (Note 3) 1,302 (9,199) (16,992) Gain on life insurance policy 98,924 Other 37,064 17,810 17,867 ---------- ---------- ---------- 469,374 316,940 279,867 Other expenses Salaries and wages 653,313 669,093 652,165 Pension and other employee benefits (Note 9) 229,727 275,935 147,495 Occupancy expense of bank 180,000 156,000 156,000 ----------- ----------- ------------ 180,906 156,644 156,402 INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY BANK 180,906 156,644 156,402 Equity in undistributed income of subsidiary bank 445,196 415,385 687,930 ----------- ----------- ------------premises 123,556 118,495 97,159 FDIC assessment 45,181 86,794 91,652 Equipment expenses 133,539 155,778 191,973 Supplies and postage expense 85,791 77,378 77,063 Professional services 80,604 55,797 47,907 Other expenses 209,657 230,550 203,486 ---------- ---------- ---------- 1,561,368 1,669,820 1,508,900 ---------- ---------- ---------- INCOME BEFORE INCOME TAX 626,102 572,029 844,332 Provision forTAXES 804,077 541,125 631,709 Federal income tax 151 - - ----------- ----------- ------------expense (Note 8) 188,366 138,370 219,350 ---------- ---------- ---------- NET INCOME $ 625,951615,711 $ 572,029402,755 $ 844,332 =========== =========== ============412,359 ========== ========== ========== Earnings per common share (Note 1) $8.10 $5.08 $5.23 ===== ===== =====
(Continued) F-17See accompanying notes to consolidated financial statements. F-5 88 F&M BANCORP AND SUBSIDIARY NOTES TO69 HASTINGS FINANCIAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS April 30,OF CHANGES IN SHAREHOLDERS' EQUITY Years ended December 31, 1995, 1994 and 1993 Information as of and Prior
Net Unrealized Gain (Loss) on Securities Total Common Capital Retained Available Shareholders' Stock Surplus Earnings for Sale Equity ----- ------- -------- -------- ------ BALANCE, JANUARY 1, 1993 $ 78,367 $ 748,849 $3,257,531 $4,084,747 Net income 412,359 412,359 Cash dividends at $1.65 per share (129,306) (129,306) ---------- ---------- ----------- ----------- BALANCE, DECEMBER 31, 1993 78,367 748,849 3,540,584 4,367,800 Unrealized gain on securities available for sale at January 1, 1994, net of tax of $27,442 $ 53,271 53,271 Net income 402,755 402,755 Cash dividends at $1.75 per share (137,142) (137,142) Change in net unrealized gain (loss) on securities available for sale, net of tax of $59,496 (115,492) (115,492) ---------- ---------- ---------- ----------- ----------- BALANCE, DECEMBER 31, 1994 78,367 748,849 3,806,197 (62,221) 4,571,192 Net income 615,711 615,711 Repurchase and retirement of common stock (2,904) (158,268) (161,172) Cash dividends at $2.25 per share (169,792) (169,792) Change in net unrealized gain (loss) on securities available for sale, net of tax of $29,846 57,934 57,934 ---------- ---------- ---------- ---------- ---------- BALANCE, DECEMBER 31, 1995 $ 75,463 $ 590,581 $4,252,116 $ (4,287) $4,913,873 ========== ========== ========== =========== ==========
See accompanying notes to April 30, 1993 is Unaudited NOTE 12 - PARENT COMPANY ONLYconsolidated financial statements. F-6 70 HASTINGS FINANCIAL STATEMENTS (Continued) CONDENSEDCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended April 30,December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 625,951615,711 $ 572,029402,755 $ 844,332412,359 Adjustments to reconcile net income to net cash from operating activities EquityDepreciation 85,023 113,803 117,570 Net (gains) losses on security sales and calls (1,302) 9,199 16,992 Provision for loan losses 34,030 2,775 Net amortization of premiums and discounts on investment securities 9,405 4,651 Net change in undistributed income of subsidiary bank (445,196) (415,385) (687,930) ---------- ----------assets and liabilities Accrued interest receivable 62,720 (13,230) 57,175 Other assets (23,194) (915) (33,021) Accrued interest payable 14,159 (6,153) (17,705) Other liabilities 69,320 (141,180) 5,211 ----------- ----------- ----------- Net cash from operating activities 180,755 156,644 156,402865,872 371,705 558,581 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale (500,000) (5,000,000) Proceeds from sales of securities available for sale 1,500,000 1,500,000 Proceeds from maturities of securities available for sale 2,000,000 3,500,000 Purchases of securities held to maturity (500,625) (3,650,967) Proceeds from maturities and calls of securities held to maturity 2,873,698 3,350,000 Proceeds from principal paydowns on mortgage-backed securities 154,768 819,335 1,215,028 Proceeds from sales and maturities of investment securities 7,375,774 Purchases of investment securities (10,263,269) Net change in loans (1,843,918) (4,455,385) 966,346 Purchases of premises and equipment, net (328,669) (10,863) (86,868) Purchase of other assets (25,000) ----------- ----------- ----------- Net cash from investing activities 3,355,254 (3,947,880) (817,989)
See accompanying notes to consolidated financial statements. F-7 71 HASTINGS FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993
CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 483,963 313,313 (2,136,132) Net change in federal funds purchased (600,000) 600,000 Dividends paid (168,990) (146,458) (146,458) ---------- ----------(137,142) (129,306) Repurchase and retirement of common stock (161,172) ----------- Cash flows----------- ----------- Net cash from financing activities (168,990) (146,458) (146,458)(414,351) 913,313 (2,265,438) ----------- ----------- ----------- Net change in cash and cash equivalents 11,765 10,186 9,9443,806,775 (2,662,862) (2,524,846) Cash and cash equivalents at beginning of year 33,598 23,412 13,4683,051,689 5,714,551 8,239,397 ----------- ----------- ----------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 45,3636,858,464 $ 33,5983,051,689 $ 23,4125,714,551 =========== =========== ======================= Supplemental disclosure of cash flow information Cash paid during the year for Interest $ 1,060,987 $ 1,015,613 $ 1,074,140 Income taxes 157,000 193,056 226,800
Supplemental disclosure of noncash investing activities Upon the adoption of SFAS No. 115 at January 1, 1994, the Corporation transferred $4,666,441 from investment securities to securities available for sale and transferred $13,830,063 from investment securities to securities held to maturity. See accompanying notes to consolidated financial statements. F-8 72 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 131 - IMPACTNATURE OF NEWOPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING STANDARDSPOLICIES NATURE OF OPERATIONS AND INDUSTRY SEGMENT INFORMATION: The Corporation is organized as a bank holding company, and its wholly-owned subsidiary, National Bank of Hastings (the Bank), is a national banking corporation. The accompanying consolidated financial statements include the accounts of the Corporation and the Bank. All significant intercompany transactions and balances have been eliminated in consolidation. The Corporation grants credit and accepts deposits from its customers in the normal course of business, substantially all of which is in the area of South Central Michigan. The Corporation operates primarily in the banking industry which accounts for more than 90% of its revenues, operating income and assets. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. CERTAIN SIGNIFICANT ESTIMATES: The allowance for loan losses and fair values of certain financial instruments involve certain significant estimates made by management. These estimates are reviewed by management routinely and it is reasonably possible that circumstances that exist at December 31, 1995 will change in the near-term and that the effect would be material to the consolidated financial statements. SECURITIES AVAILABLE FOR SALE: Investment securities available for sale consist of those securities not classified as trading or held to maturity. Such securities might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Effective January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115). As required by SFAS No. 115, securities classified as available for sale are reported at their fair values and the related unrealized holding gain or loss is reported, net of related income tax effects, as a separate component of shareholders' equity, until realized. Adoption of SFAS No. 115 increased shareholders' equity at January 1, 1994 by $53,271. Premiums and discounts on securities available for sale are recognized in interest income using the level yield method over the estimated life of the security. Gains and losses on the sale of securities available for sale are determined using the specific identification method based upon amortized cost. SECURITIES HELD TO MATURITY: Investment securities for which management has the positive intent and the Corporation has the ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the level yield method over the period to maturity. (Continued) F-9 73 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) LOANS: Loans are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees. LOAN FEES AND COSTS: Loan fees, net of certain direct loan origination costs, are deferred and amortized into interest income over the term of the loans using the level-yield method. ALLOWANCE FOR LOAN LOSSES: Because some loans may not be repaid in full, an allowance for loan losses is recorded. Increases to the allowance are recorded by a provision for possible loan losses charged to expense. Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover possible losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time. While management may periodically allocate portions of the allowance for specific problem loan situations, the whole allowance is available for any loan charge-offs that occur. A loan is charged-off against the allowance by management as a loss when deemed uncollectible, although collection efforts may continue and future recoveries may occur. In May 1993, the Financial Accounting Standards Board issued SFAS No. 114, Accounting by Creditors for Impairment of a Loan.Loan (SFAS No. 114). SFAS No. 114, effective for the Bank beginning January 1, 1995, requires that impaired loans, as defined, be measured based on the present value of expected cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of collateral if the loan is collateral dependent. SFAS No. 114, as amended by SFAS No. 118, requires that allowances for loan losses on impaired loans be determined using the present value of estimated future cash flows of the loan, discounted at the loan's effective interest rate. A loan is considered to be impaired when it is probable that all principal and interest amounts will not be collected according to the loan contract. SFAS No. 114 and No. 118 are effective for fiscal years beginning after December 15, 1994. The Company does not anticipate the effect of adopting the new accounting pronouncement to be material to the Company's consolidated financial statements. (Continued) F-18 89 F&M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1995, 1994 and 1993, Information as of and Prior to April 30, 1993 is Unaudited NOTE 14 - PROPOSED ACQUISITION OF THE COMPANY On September 11, 1995, the Company entered into a Plan and Agreement of Merger (the "Agreement") to be acquired by First Financial Bancorp (FFB), a holding company, headquartered in Hamilton, Ohio with total assets of $1,922,643,000 and total equity of $194,673,000 at December 31, 1994. FFB will pay $12,500,000 in common stock of FFB for all the outstanding shares of the Company. It is anticipated that the transaction will be a tax free exchange of stock and will be recorded using the pooling-of-interests method of accounting. The exchange ratio will be subject to a final pricing period (as defined) prior to the consummation date of the merger. The Agreement allows for termination and abandonment under various conditions. One such provision allows FFB to terminate the Agreement if the average price (computed according to the terms defined in the Agreement) of FFB common stock is less than $28.48 per share. Similarly, the Company has the option to terminate the Agreement if the average price of FFB common stock is greater than $38.53 per share. Upon consummation of the transaction, the Company will be merged into FFB and the Company's subsidiary bank, Farmers & Merchants Bank, will be merged into Indiana Lawrence Bank, a subsidiary of FFB. The transaction is subject to the approval of the Company's shareholders and various regulatory agencies. F-19 90 F & M BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED OCTOBER 31, 1995 AND 1994 The following discussion provides information about the Company's financial condition and results of operations which may not otherwise be apparent from the consolidated financial statements included elsewhere herein. This discussion should be read in conjunction with the consolidated financial statements and the related footnotes. Earnings Summary Consolidated net income for F & M Bancorp (the "Company") for the six month period ended October 31, 1995 totaled $326,000 ($57.95 per share), a decrease of $31,000 or 9% over the $357,000 ($63.33 per share) earned during the same period in 1994. No cash dividends were declared for the six month periods ended October 31, 1995 and 1994. Historically, the Company declares an annual dividend in the first quarter of the calendar year. Results Of Operations - Six Months Ended October 31, 1995 Versus 1994 Net interest income for the six month period ended October 31, 1995 was $1,337,000, an increase of $11,000 or 0.8% from the same period in 1994. This modest increase in net interest income resulted from an increase in interest income of $82,000 offset by an increase in interest expense of $71,000. Federal funds sold increased $4,500,000 during the six month period, from $0 at April 30, 1995 to $4,500,000 at October 31, 1995. This increase was funded by a decrease in securities held-to-maturity and an increase in deposits. Securities (available-for-sale and held-to-maturity) totaled $23,224,000 at October 31, 1995 which represents a decrease of $903,000 or 3.7% from total securities of $24,127,000 at April 30, 1995. The decrease in securities is the result of proceeds from maturities being shifted into short term federal funds sold to provide increased liquidity. The decrease in securities was tempered by an increase in fair value for securities available-for-sale totaling $157,000 over the six month period. There were no purchases of securities for the six month period ended October 31, 1995. As discussed in Note 2 of the October 31, 1995 Consolidated Financial Statements, management and the Board of Directors are presently evaluating the Special Report issuedadopted by the Financial Accounting Standards Board on November 15, 1995 providing guidance on the implementation of Statement of Financial Accounting Standards No. 115. See Note 2 for further discussion regarding the Special Report and the possible impact on future financial statements. Total loans remained fairly constant over the six month period ended October 31, 1995. 64 91 Total deposits at October 31, 1995 amounted to $56,084,000, an increase of $4,660,000 or 9.1% over total deposits of $51,424,000 at April 30, 1995. This increase predominately occurred in October, 1995. Approximately $3,000,000 of the increase related to municipal funds received from a bond issue being deposited at the Bank subsidiary. At November 30, 1995, approximately $1,300,000 of these funds remain on deposit. Management has invested these deposits in overnight federal funds to ensure adequate liquidity. The provision for loan losses was $82,000 for the six months ended October 31, 1995 as compared to $55,000 for the similar period in 1994, or an increase of $27,000. Gross charge-offs for the six month period ended October 31, 1995 were $63,000 as compared to the six month period ended October 31, 1994 amount of $129,000, or a decrease of $66,000. At October 31, 1995, the allowance for loan losses was $688,000 or 2.15% of total loans, compared to $643,000 or 2.01% of total loans at April 30, 1995. Management believes the allowance for loan losses balance at October 31, 1995 is adequate to absorb losses on loans that may occur. Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" was adopted at May 1, 1995. The effect of adopting this standard was not material to the consolidated financial statements. Other income remained consistent for the six months ended October 31, 1995 as compared to the same period in 1994. Total non-interest expense decreased $14,000 or 1.5% to $933,000 for the six months ended October 31, 1995 as compared to the same period in 1994. The more significant changes were a decrease in salaries and employee benefits of $61,000 or 11% and a decrease in FDIC assessment of $63,000 or 88%, offset by merger related expenses of $121,000. The decrease in salaries and employee benefits is principally related to a reduction in the number of officer positions. The decrease in FDIC assessment is the result of the FDIC substantially decreasing the deposit insurance rate for insured funds and providing a refund of certain prior funds paid during the six month period ended October 31, 1995. Management anticipates that the near-term FDIC assessment levels will continue at low levels. As a result of the proposed acquisition of the Company (see Note 14 in the April 30, 1995 Consolidated Financial Statements for further information), certain professional fees have been incurred during the six months ended October 31, 1995. These fees include attorney, accounting and various consulting fees associated with the proposed merger. Income tax expense for the six month period ended October 31, 1995 was $156,000, an increase of $31,000 or 25% over the same period in 1994. This increase is primarily due to the nondeductible nature of certain merger related expenses. Liquidity The Company manages its primary liquidity position to provide funding at the lowest possible cost for anticipated loan demand and/or deposit run-off that occurs in the regular course of business. Such sources of liquidity are: federal funds, purchased lines with correspondent banks and maturities from the securities held-to- maturity portfolio. At October 31, 1995, scheduled maturities over the next six months total $1,673,000. 65 92 The Company manages a secondary liquidity position to provide funding in the event of unanticipated loan demand and/or deposit run-off. Management maintains approximately 14% or $2,933,000 of its securities portfolio as available-for-sale as of October 31, 1995. This designation provides additional liquidity to fund abnormal loan demand, or to manage unanticipated run-off of deposits. These securities are readily marketable as they are U.S. federal agency securities directly or indirectly guaranteed by the Federal government. The following is a brief description of the sources and uses of funds for the period indicated: During the six month period ended October 31, 1995, there was a net increase of $6,171,000 in cash and cash equivalents. Major sources of funds included a $4,660,000 increase in deposits (see previous discussion regarding the impact of municipal funds on the growth of deposits), $1,050,000 in maturities of securities held-to-maturity and $467,000 from operating activities. There were no significant uses of funds. Capital Management Total shareholders' equity was $7,819,000 as of October 31, 1995, an increase of $422,000 over total shareholders' equity of $7,397,000 as of April 30, 1995. The increase in total shareholders' equity was primarily due to net income for the six months ended October 31, 1995 of $326,000. In addition, equity was positively impacted by the effects of SFAS No. 115. The effect of accounting for securities available-for-sale under SFAS No. 115 increased equity $95,000, net of tax of $62,000, through an increase in the fair value of securities available-for-sale. Restrictions exist regarding the ability of the subsidiary bank to transfer funds to the Company in the form of cash dividends, loans or advances (see Note 1 in the April 30, 1995 Consolidated Financial Statements). These restrictions have had no major impact on the Company's dividend policy or operations and are not anticipated to have any major impact in the future. The Company's bank subsidiary remains above the minimum capital requirements at October 31, 1995 for a well capitalized bank. At October 31, 1995, management is not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse effect on the Company's liquidity, capital management or operations. 66 93 Inflation For a financial institution, the effects of price changes and inflation can vary substantially. Inflation affects the growth of total assets, but it is difficult to assess its impact since neither the timing nor the magnitude of the changes in the consumer price index (CPI) coincides with changes in interest rate. The price of one or more of the important components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding affect on interest rates or upon the cost of those goods and services normally purchased by the Corporation. In years of high inflation and high interest rates, intermediate and long-term fixed interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the reverse situation may occur. 67 94 F & M BANCORP AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- CONTENTS CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET - October 31, 1995............................ 69 CONSOLIDATED STATEMENTS OF INCOME - Six months ended October 31, 1995 and 1994.............................................. 70 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - Six months ended October 31, 1995 and 1994.................... 71 CONSOLIDATED STATEMENTS OF CASH FLOWS - Six months ended October 31, 1995 and 1994.............................................. 72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... 73
68 95 F & M BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEET October 31, 1995 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 3,485,038 Federal funds sold 4,500,000 ------------ Cash and cash equivalents 7,985,038 Securities available-for-sale (Note 2) 2,932,812 Securities held-to-maturity (fair value of $20,283,002) (Note 2) 20,291,561 Total loans 31,923,036 Allowance for loan losses (Note 3) (687,803) ------------ Net loans 31,235,233 Premises and equipment, net 843,344 Accrued interest receivable 880,781 Other assets 289,918 ------------ $ 64,458,687 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Noninterest-bearing $ 8,062,296 Interest-bearing 48,021,617 ------------ 56,083,913 Accrued interest payable 277,436 Other liabilities 278,288 ------------ 56,639,637 Commitments, off-balance sheet risk and contingencies Shareholders' equity Common stock: no par value; 6,000 shares authorized and issued 600,000 Additional paid-in capital 1,200,000 Retained earnings 6,190,375 Treasury stock, at cost, 367 shares (130,750) Net unrealized loss on securities available-for-sale, net of tax of $26,613 (40,575) ------------ 7,819,050 ------------ $ 64,458,687 ============
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements 69 96 F & M BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Six months ended October 31, 1995 and 1994 (Unaudited) - --------------------------------------------------------------------------------
1995 1994 ---- ---- INTEREST INCOME Interest and fees on loans $1,594,684 $1,472,056 Interest and dividends on securities Taxable 481,245 525,829 Non-taxable 183,830 187,251 Interest on federal funds sold 27,196 19,617 ---------- ---------- 2,286,955 2,204,753 INTEREST EXPENSE Deposits 947,889 874,068 Other 1,784 4,372 ---------- ---------- 949,673 878,440 ---------- ---------- NET INTEREST INCOME 1,337,282 1,326,313 Provision for loan losses (Note 3) 82,000 54,615 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,255,282 1,271,698 Other income Service charges on deposits 99,846 99,528 Other service charges and fees 36,059 38,757 Rental income 7,955 8,475 Other income 16,094 10,003 ---------- ---------- 159,954 156,763 Other expenses Salaries and employee benefits 488,158 549,588 Occupancy expense 124,772 110,551 FDIC assessment 8,473 71,389 Electronic data processing services 19,195 9,665 Advertising and marketing 18,162 15,806 Supplies and postage expense 37,718 42,229 Loss on sale of assets 10,622 36,000 Merger expense 120,664 -- Other operating expenses 105,182 111,295 ---------- ---------- 932,946 946,523 ---------- ---------- INCOME BEFORE INCOME TAX EXPENSE 482,290 481,938 Income tax expense 155,882 125,213 ---------- ---------- NET INCOME $ 326,408 $ 356,725 ========== ========== Earnings per common share $ 57.95 $ 63.33 ========== ==========
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements 70 97 F & M BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Six months ended October 31, 1995 and 1994 (Unaudited) - --------------------------------------------------------------------------------
Net Unrealized Loss Additional on Securities Total Common Paid-In Retained Treasury Available- Shareholders' Stock Capital Earnings Stock For-Sale Equity ------ ---------- -------- -------- ------------- ------------- Balances, May 1, 1994 $600,000 $1,200,000 $5,407,006 $(130,750) $ (36,188) $ 7,040,068 Net income -- -- 356,725 -- -- 356,725 Net change in unrealized loss on securities available-for-sale -- -- -- -- (105,750) (105,750) -------- ---------- ---------- --------- --------- ----------- Balances, October 31, 1994 $600,000 $1,200,000 $5,763,731 $(130,750) $(141,938) $ 7,291,043 ======== ========== ========== ========= ========= =========== Balances, May 1, 1995 $600,000 $1,200,000 $5,863,967 $(130,750) $(136,066) $ 7,397,151 Net income -- -- 326,408 -- -- 326,408 Net change in unreal- ized loss on securities available-for-sale -- -- -- -- 95,491 95,491 -------- ---------- ---------- --------- --------- ----------- Balances, October 31, 1995 $600,000 $1,200,000 $6,190,375 $(130,750) $ (40,575) $ 7,819,050 ======== ========== ========== ========= ========= ===========
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements 71 98 F & M BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended October 31, 1995 and 1994 (Unaudited) - --------------------------------------------------------------------------------
1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 326,408 $ 356,725 Adjustments to reconcile net income to net cash from operating activities Depreciation 42,066 37,118 Provision for loan losses 82,000 54,615 Net amortization on securities 10,498 56,483 Loss on sale of premises and equipment 10,622 -- Loss on sale of foreclosed assets -- 36,000 Change in accrued interest receivable (192,508) (151,985) Change in other assets (2,368) 114,997 Change in accrued interest payable 15,988 (3,730) Change in other liabilities 174,317 79,796 ----------- ----------- Total adjustments 140,615 223,294 ----------- ----------- Net cash from operating activities 467,023 580,019 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of securities held-to-maturity 1,050,000 1,250,000 Purchase of securities held-to-maturity -- (1,195,000) Loans made to customers and principal collections, net 20,467 (1,359,558) Proceeds from sale of property and equipment 66,704 -- Property and equipment expenditures (92,968) (47,795) Proceeds from sale of foreclosed real estate -- 92,000 ----------- ----------- Net cash from investing activities 1,044,203 (1,260,353) CASH FLOWS FROM FINANCING ACTIVITIES Change in deposits 4,660,065 (625,930) ----------- ----------- Net cash from financing activities 4,660,065 (625,930) ----------- ----------- Net change in cash and cash equivalents 6,171,291 (1,306,264) Cash and cash equivalents at beginning of period 1,813,747 4,577,519 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,985,038 $ 3,271,255 =========== =========== Supplemental disclosures of cash flow information Cash paid during the period for Interest $ 933,685 $ 882,170 Income taxes 150,000 40,151
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements 72 99 F & M BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 AND 1994 (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Allowance For Loan Losses: The allowance for loan losses represents that amount which management estimates is adequate to provide for losses on existing loans, based on an evaluation of the loan portfolio and prior loan loss experience. The evaluation, which is necessarily subjective, takes into consideration such factors as changes in the nature and volume of the loan portfolio, the level and seriousness of delinquencies and problem loans, and current economic conditions which may affect the borrowers' ability to pay. The allowance is established through a provision for loan losses charged to expense. The allowance is reduced by charging off loans deemed uncollectible by management. After a loan is charged off, collection efforts continue, and any recoveries of loans previously charged off are added to the allowance. Financial Accounting Standards Board (FASB) Standard No. 114 was adopted at MayCorporation effective January 1, 1995. Under this standard, loans considered to be impaired are reduced to the present value (using the loan agreement rate) of expected future cash flows or to the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans. If these allocations cause the allowance for loan losses to require increase, such increase is reported as bad debt expense.part of the provision for loan losses. The effect of adopting this standard is reported within the provision for loan losses, and was not material for 1995. (Continued) F-10 74 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Smaller balance homogeneous loans are defined as residential first mortgage loans secured by one-to-four family residences, residential construction loans, student loans, home equity and second mortgage loans, and automobile loans and are evaluated collectively for impairment. Commercial real estate loans and other commercial loans are evaluated individually for impairment. In general, loans classified as doubtful or loss are considered impaired while loans classified as substandard are individually evaluated for impairment. Depending on the relative size of the credit relationship, late or insufficient payments of 30 to 90 days will cause management to reevaluate the consolidated financial statements.credit under its normal loan evaluation procedures. While the factors which identify a credit for consideration for measurement of impairment, or nonaccrual, are similar, the measurement considerations differ. A loan is impaired when the economic value estimated to be received is less than the value implied in the original credit agreement. A loan is placed in nonaccrual when payments are more than 90 days past due unless the loan is adequately collateralized and in the process of collection. Although impaired loan and nonaccrual loan balances are measured differently, impaired loan disclosures under SFAS Nos. 114 and 118 are not expected to differ significantly from nonaccrual and renegotiated loan disclosures. INTEREST INCOME: Interest Income on Loans: Theloans is accrued over the term of the loans based upon the principal outstanding, except where collectibility is in question, in which case the accrual of interest is discontinued. Management reviews loans delinquent 90 days or more to determine if interest accrual should be discontinued based on the estimated fair market value of the collateral. Effective January 1, 1995, under SFAS No. 114 as amended by SFAS No. 118, the carrying values of impaired loans are periodically adjusted to reflect cash payments, revised estimates of future cash flows, and increases in the present value of expected cash flows due to the passage of time. Cash payments representing interest income are reported as such. Other cash payments are reported as reductions in carrying value, while increases or decreases due to changes in estimates of future payments and due to the passage of time are reported as bad debt expense or as reductions in bad debt expense. NOTE 2 - SECURITIES The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115adjustments to the provision for loan losses. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed principally on April 30, 1994. Upon adoptionthe straight-line method over the estimated useful lives of the standard,assets for financial reporting purposes. For tax purposes, accelerated methods are primarily used. OTHER REAL ESTATE OWNED: Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management classified $3,000,000and the real estate is carried at the lower of investment securities as securities available-for-sale. On November 15, 1995,cost or fair value minus estimated costs to sell. The balance of other real estate owned included in other assets in the Financial Accounting Standards Board issued a Special Report entitled "A Guide to Implementation of Statement 115 on Accounting for Certain Investments In Debt and Equity Securities" (the Guide). The Guide addresses questions regarding various SFAS No. 115 implementation issues. Of particular interest is paragraph 61 which provides for a one-time opportunity for an entity to reassess the appropriateness of the classifications of all securities held and reclassify securities as deemed appropriate. Any reclassifications must occur no later thanconsolidated balance sheets at December 31, 1995 and should be accounted for1994 was $0 and disclosed in accordance with guidance provided in SFAS No. 115. The December 31, 1995 deadline applies not only to entities with calendar year ends, but also to entities whose fiscal year does not correspond to the calendar year. Restatement of financial statements of prior periods to reflect the effects of any reclassifications is not permitted. Reclassifications from the held-to-maturity category resulting from this one time reassessment will not call into question the intent of management to hold other debt securities to maturity in the future. - -------------------------------------------------------------------------------- 73$57,162, respectively. (Continued) F-11 100 F & M BANCORP AND SUBSIDIARY75 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBERDecember 31, 1995, 1994 and 1993 NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) FEDERAL INCOME TAXES: In accordance with SFAS No. 109, Accounting for Income Taxes, the Corporation uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities. This results in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Federal income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. EARNINGS PER COMMON SHARE: Earnings per common share amounts are computed based on the weighted average number of shares outstanding adjusted for the effect of dilutive stock options. (See Note 13.) The number of weighted average shares was 76,036 in 1995, 79,249 in 1994 (UNAUDITED)and 78,883 in 1993. STATEMENTS OF CASH FLOWS: For purposes of the statements of cash flows, the Corporation considers cash on hand, cash due from other banks and federal funds sold to be cash equivalents. The Corporation reports net cash flows for loans, deposits and federal funds purchased with an initial maturity of 90 days or less. ACCOUNTING STATEMENTS ISSUED, NOT YET ADOPTED: The Financial Accounting Standards Board has recently issued the following Statements which have not been adopted by the Bank at December 31, 1995. SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, requires the Bank to periodically consider whether an impairment loss should be recognized on long-lived assets and other certain identifiable intangible assets based on an estimate of future cash flows. SFAS No. 122, Accounting for Mortgage Servicing Rights, requires the Bank to recognize mortgage servicing rights on loans it purchases or originates with the intent to sell as an asset. It also requires that these capitalized mortgage servicing rights be evaluated for impairment based on the fair value of those rights. SFAS No. 123, Accounting for Stock-Based Compensation, encourages but does not require, the Bank to use a "fair valued-based method" to account for stock-based compensation plans. If the fair value accounting encouraged by SFAS No. 123 is not adopted, entities must disclose the proforma effect on net income and earnings per share had the accounting been adopted. (Continued) F-12 76 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 1 - --------------------------------------------------------------------------------NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The Statements discussed above are required to be implemented for years beginning after December 31, 1995. Although management of the Bank has not fully analyzed these Statements, they believe the impact of their adoption will not be material to the Bank's consolidated financial condition or results of operations. RECLASSIFICATIONS: Certain amounts in the 1994 and 1993 consolidated financial statements have been reclassified to conform with the 1995 presentation. NOTE 2 - SECURITIES (CONTINUED) Management andCASH AND DUE FROM BANKS Minimum cash balances, which are based on the Board of Directors are presently evaluating the Guide and considering the reclassification of certain securities from held-to-maturity to available-for-sale. Management has identified approximately $8,000,000 of securities classified as held-to-maturity that may be transferred. The unrealized loss on these securities totals $119,000 at October 31, 1995. Furthermore, consideration is being given to selling these securities as well as the securities presently classified as available-for-sale. If these securities had been sold as of October 31, 1995, a loss of approximately $182,000 would have been realized. The after-tax reduction to net income would have been approximately $110,000. However, no decision to reclassify or to sell have been made. NOTE 3 - ALLOWANCE FOR LOAN LOSSES A summarydeposit levels of the activity inBank, are required to be maintained by the allowance for loan losses for the six months ended OctoberFederal Reserve as legal reserve requirements. Cash balances restricted from usage due to these requirements were approximately $168,000 and $179,000 at December 31, 1995 and 1994, isrespectively. NOTE 3 - SECURITIES Securities have been classified in the Consolidated Balance Sheets according to management's intent. The amortized cost and fair values of securities at December 31, 1995 and 1994 are as follows: AVAILABLE FOR SALE
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- 1995 U.S. Treasury and federal agencies $ 1,448,424 $ 15,963 $ (27,904) $ 1,436,483 Other corporate securities 213,304 5,446 218,750 ----------- ----------- ----------- ----------- $ 1,661,728 $ 21,409 $ (27,904) $ 1,655,233 =========== =========== =========== =========== 1994 U.S. Treasury and federal agencies $ 1,944,162 $ 8,056 $ (81,880) $ 1,870,338 State and political subdivisions 2,500,000 2,500,000 Other corporate securities 227,951 (20,451) 207,500 ----------- ----------- ----------- ----------- $ 4,672,113 $ 8,056 $ (102,331) $ 4,577,838 =========== =========== =========== ===========
(Continued) F-13 77 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 3 - SECURITIES (Continued) HELD TO MATURITY
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- 1995 - ---- U.S. Treasury and federal agencies $ 7,509,669 $ 1,793 $ (140,333) $ 7,371,129 State and political subdivisions 2,907,072 41,397 (16,106) 2,932,363 Other corporate securities 251,235 1,515 252,750 Mortgage-backed securities 98,638 4,400 103,038 ----------- ----------- ----------- ----------- $10,766,614 $ 49,105 $ (156,439) $10,659,280 =========== =========== =========== =========== 1994 - ---- U.S. Treasury and federal agencies $ 9,945,097 $ 6,522 $ (676,560) $ 9,275,059 State and political subdivisions 2,981,372 92,208 (113,230) 2,960,350 Other corporate securities 254,084 (1,784) 252,300 Mortgage-backed securities 111,620 (11,658) 99,962 ----------- ----------- ----------- ----------- $13,292,173 $ 98,730 $ (803,232) $12,587,671 =========== =========== =========== ===========
The amortized cost and fair values of debt securities at December 31, 1995, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The mortgage-backed securities mature in installments at various dates. Because of their variable payments, mortgage-backed securities are not reported by a specific maturity grouping.
Available for Sale Held to Maturity ------------------ ---------------- Amortized Fair Amortized Fair Cost Value Cost Value ---- ----- ---- ----- Due in one year or less $ 449,270 $ 465,233 $ 1,370,930 $ 1,368,915 Due after one year through five years 1,212,458 1,190,000 7,908,384 7,777,017 Due after five years through ten years 1,388,662 1,410,310 ----------- ----------- ----------- ----------- 1,661,728 1,655,233 10,667,976 10,556,242 Mortgage-backed securities 98,638 103,038 ----------- ----------- ----------- ----------- $ 1,661,728 $ 1,655,233 $10,766,614 $10,659,280 =========== =========== =========== ===========
(Continued) F-14 78 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 3 - SECURITIES (Continued) Proceeds from calls of securities held to maturity were $1,948,698 in 1995 and $950,000 in 1994. Gains of $1,302 and $80 were realized on these calls in 1995 and 1994, respectively, and losses of $9,279 were realized in 1994. Proceeds from the sale of investment securities available for sale were $1,500,000 in 1995 with no gain or loss realized on these sales. No securities that were classified as held to maturity were sold during 1995 or 1994. Proceeds from debt securities which were called during 1993 were $1,578,400. Gains of $7,275 and losses of $24,267 were realized on called securities for the year ended December 31, 1993. At December 31, 1995 and 1994, securities with an approximate carrying value of $500,000 and $445,000, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law. NOTE 4 - LOANS Loans at December 31, 1995 and 1994 are classified as follows:
1995 1994 ---- ---- Commercial $ 694,890 $ 516,990 Installment 12,057,368 10,052,200 Real estate 12,248,523 12,557,559 Other 162,973 202,847 ----------- ----------- $25,163,754 $23,329,596 =========== ===========
Installment loans include student loans which are being serviced by Great Lakes Higher Education Corporation. The amount of student loans in this portfolio was $4,283,746 and $5,382,605 at December 31, 1995 and 1994, respectively. These loans are guaranteed by the Federal government. CONCENTRATIONS OF CREDIT RISK: The Corporation grants commercial, installment, home equity and real estate loans to customers primarily in the Barry County area of Michigan. Certain loans are secured by real estate, automobiles and various other items of collateral. (Continued) F-15 79 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 5 - ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses for 1995, 1994 and 1993 are summarized as follows:
1995 1994 1993 ---- ---- ---- Balance May 1at beginning of year $ 643,008175,761 $ 602,038166,970 $ 198,244 Recoveries 8,337 16,891 4,410 Provision charged to operations 34,030 2,775 Loans charged off (18,097) (10,875) (35,684) ----------- ----------- ----------- Balance at end of year $ 200,031 $ 175,761 $ 166,970 =========== =========== ===========
At December 31, 1995, 1994 and 1993, the amount of loans 90 days or more past due was $32,000, $61,900 and $9,764, respectively. During 1995, the Bank had no loans which were impaired as defined under the provisions of SFAS Nos. 114 and 118. NOTE 6 - PREMISES AND EQUIPMENT Premises and equipment at December 31, 1995 and 1994 are summarized as follows:
1995 1994 ---- ---- Building and improvements $ 908,757 $ 626,505 Equipment 978,052 967,378 ----------- ----------- 1,886,809 1,593,883 Accumulated depreciation (1,089,710) (1,009,068) ----------- ----------- 797,099 584,815 Land 229,232 197,870 ----------- ----------- $ 1,026,331 $ 782,685 =========== ===========
(Continued) F-16 80 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 7 - DEPOSITS The Corporation had an aggregate of $624,472 and $792,065 in certificates of deposit issued in denominations of $100,000 or more as of December 31, 1995 and 1994, respectively. Interest expense on these deposits was $31,951 in 1995, $45,849 in 1994 and $48,947 in 1993. Deposits accepted in the normal course of business on behalf of related parties were approximately $216,000 as of December 31, 1995. The schedule of maturity for certificates of deposits as of December 31, 1995 are as follows:
Maturing within one year $ 5,848,647 Maturing in one to three years 1,224,749 Maturing in three to five years 209,773 Maturing in five to ten years 108,318 ----------- $ 7,391,487 ===========
NOTE 8 - FEDERAL INCOME TAXES Federal income tax expense for the years ended December 31, 1995, 1994 and 1993 consists of the following:
1995 1994 1993 ---- ---- ---- Current expense $ 201,166 $ 152,370 $189,250 Deferred expense (benefit) (12,800) (14,000) 30,100 --------- --------- -------- $ 188,366 $ 138,370 $219,350 ========= ========= ========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995, 1994 and 1993, are as follows:
1995 1994 1993 ---- ---- ---- Deferred tax assets Allowance for loan loss $ 23,500 $ 13,000 $ 12,300 Deferred compensation 146,600 154,000 125,000 Unrealized loss on available for sale securities 2,200 32,000 Other 2,000 7,500 ----------- ----------- ----------- 174,300 199,000 144,800 Deferred tax (liabilities) Accrual to cash adjustment (118,000) (108,700) (98,700) Fixed assets (16,700) (25,900) (35,500) Other (7,800) ----------- ----------- ----------- (134,700) (142,400) (134,200) ----------- ----------- ----------- Net deferred tax asset $ 39,600 $ 56,600 $ 10,600 =========== =========== ===========
(Continued) F-17 81 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 8 - FEDERAL INCOME TAXES (Continued) No valuation allowance has been recorded against deferred tax assets. Federal income tax expense differs from that computed at the federal statutory corporate tax rate as follows:
1995 1994 1993 ---- ---- ---- Statutory rate 34% 34% 34% Tax expense at statutory rate $ 273,400 $ 184,000 $ 214,800 Tax exempt municipal interest income (57,400) (61,600) (52,100) Nontaxable life insurance proceeds (33,600) Disallowed interest expense 4,600 7,500 7,100 Other 1,366 8,470 49,550 --------- ---------- --------- $ 188,366 $ 138,370 $ 219,350 ========= ========== =========
Federal income tax expense (benefit) on net securities gains (losses) were $443, ($3,128) and ($5,777) in 1995, 1994 and 1993, respectively. NOTE 9 - BENEFIT PLANS The Corporation sponsors a defined benefit pension plan that covers substantially all employees. The plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Corporation and compensation rates. Contributions to the plan are determined in accordance with the Employee Retirement Income Security Act of 1974 and with appropriate Internal Revenue Service regulations. Plan assets are invested in a guaranteed investment fund consisting primarily of corporate debentures and real estate mortgages. Pension expense includes the following components:
1995 1994 1993 ---- ---- ---- Service cost - benefits earned during the current period $ 27,383 $ 28,251 $ 21,591 Interest cost on the projected benefit obligation 25,733 25,494 18,984 Actual loss (return) on assets held in the plan (69,052) 39,999 (6,205) Net amortization of unrecognized transition assets and prior service costs (99) (99) (1,609) Unrecognized gain or (loss) 55,670 (58,145) (11,881) ----------- ----------- ----------- $ 39,635 $ 35,500 $ 20,880 =========== =========== ===========
(Continued) F-18 82 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 9 - BENEFIT PLANS (Continued) The following sets forth the funded status of the plan at December 31:
1995 1994 ---- ---- Actuarial present value of benefit obligations Vested benefits $ (211,540) $ (239,012) Nonvested benefits (16,971) (25,923) ----------- ----------- $ (228,511) $ (264,935) =========== =========== Fair value of plan assets $ 279,102 $ 251,217 Projected benefit obligation (372,937) (405,390) ----------- ----------- Projected benefit obligation in excess of plan assets (93,835) (154,173) Unrecognized net loss 45,498 104,494 Unrecognized transition asset (45,044) (48,262) Unrecognized prior service cost 67,781 70,900 ---------- ----------- Accrued pension liability $ (25,600) $ (27,041) =========== ===========
The weighted average discount rate used to measure the projected benefit obligation was 7.25% in 1995, 1994 and 1993. The rate of increase in future compensation levels was 5% in 1995, 1994 and 1993. The expected long-term rate of return on assets was 7.75% for 1995 and 8% for 1994 and 1993. Amortization of prior service cost and unrecognized gains and losses is performed under the straight-line method of amortization over the average remaining service period of employees expected to receive benefits. The Corporation has a 401(k) employee savings plan covering substantially all employees. Contributions are voluntary and at the discretion of the Board of Directors. Employee contributions cannot exceed the lesser of 15% of their annual salary or the maximum allowable amount under current Internal Revenue Code guidelines. The Corporation contributed $2,627, $3,627 and $3,189 to the plan in 1995, 1994 and 1993, respectively. The Bank has a deferred compensation and noncompete agreement with an officer which provides that upon termination of employment resulting from retirement, death or disability, the officer shall be paid $24,000 annually for a period of five years. Deferred compensation expense for the years ended December 31, 1995, 1994 and 1993 was $19,783, $20,002 and $20,002, respectively. The Bank provides a Selective Retirement Plan for certain retired and active employees. The Corporation has committed to pay selected employees, or their beneficiary, upon retirement or death, a monthly benefit for 10 years. The retirement age was changed from age 65 to 60 in 1994 which increased the December 31, 1994 liability by $45,000, net of tax. The Corporation has purchased life insurance policies on the plan participants which had a cash value of $226,000 and $228,000 at December 31, 1995 and 1994, respectively, and is included in other assets. The estimated obligation under the plan is $331,494 and $373,000 as of December 31, 1995 and 1994, respectively, and is included in other liabilities. (Continued) F-19 83 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of unused lines-of-credit. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument is represented by the contractual amounts of these instruments. The Corporation uses the same credit policies in making such commitments as it does for loans recorded in the financial statements. Since many commitments typically expire without being funded, the total does not necessarily represent future cash requirements. Financial instruments whose contract amounts represent credit risk at December 31 are as follows: 1995 1994 ---- ---- Unused lines of credit $ 2,142,128 $ 2,021,911 Most of these commitments were made at variable rates tied to the prime rate of interest. NOTE 11 - RETAINED EARNINGS - DIVIDEND RESTRICTION Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank's regulatory agency. Retained earnings of the Bank from which dividends may be paid to the holding company were $715,085, $551,461 and $653,699 at December 31, 1995, 1994 and 1993, respectively. NOTE 12 - RELATED PARTY LOAN TRANSACTIONS Certain directors and executive officers of the Corporation, including their immediate families and companies in which they are principal owners, are loan customers of the Bank. Total loans to these persons approximate $175,476 and $146,974 at December 31, 1995 and 1994, respectively. During 1995 and 1994, $80,000 and $0 related party loans were originated, respectively, and $51,498 and $24,034 of repayments were made on those loans, respectively. NOTE 13 - STOCK OPTION The Corporation has entered into a stock option agreement with an officer that grants the officer options to purchase 5,000 shares of the Corporation's common stock for a purchase price of $36 per share. The options are exercisable as follows: 1,000 shares after expiration of the initial 12-month term of the options and an additional 1,000 shares at the expiration of each 12-month period thereafter. As of December 31, 1995, 4,000 shares are available for exercise. The options will remain exercisable until the 10th anniversary of the date of grant, except in the event of death or termination of employment. No stock options have been exercised under the plan. (Continued) F-20 84 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 14 - COMMITMENTS AND CONTINGENCIES In the ordinary course of business, the Corporation has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Corporation is involved in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial statements of the Corporation. NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value: Cash and cash equivalents - ------------------------- For these short-term investments which include amounts due from other financial institutions and federal funds sold, the carrying amount is a reasonable estimate of fair value. Securities - ---------- For securities available for sale and held to maturity, estimated fair values are based on quoted market prices or dealer quotes. Loans, net of allowance for loan losses - --------------------------------------- The estimated fair value of loans, net of allowance for loan losses, is principally estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, and using prepayment assumptions for residential family loans. The carrying value of the allowance for loan losses is a reasonable estimate of fair value. Federal Home Loan Bank (FHLB) stock and Federal Reserve Bank stock - ------------------------------------------------------------------ The carrying amount is a reasonable estimate of the fair value for FHLB and Federal Reserve Bank stock. Deposits - -------- The estimated fair value of noninterest-bearing demand deposits, NOW and money market deposits and savings deposits is the amount payable on demand at the reporting date. The estimated fair value of fixed-maturity certificates of deposit is estimated by discounting future cash flows using the rates currently offered for deposits of similar remaining maturities. (Continued) F-21 85 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Accrued interest receivable and payable - --------------------------------------- For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value. Off-balance-sheet financial instruments - --------------------------------------- The Bank's commitments to extend credit and undisbursed loans are deemed to have no fair value as such commitments are generally fulfilled at current market rates. The estimated fair values of the Bank's financial instruments are as follows:
December 31, 1995 ----------------- (in thousands) Estimated Carrying Fair Value Value ----- ----- Financial assets Cash and cash equivalents $ 6,858 $ 6,858 Securities 12,422 12,315 Loan, net of allowance for loan losses 82,000 54,615 Loans charged-off (62,780) (129,269) Recoveries on loans previously charged-off 25,575 37,171 --------- --------- Balance, October24,964 24,803 FHLB and Federal Reserve Bank stock 171 171 Accrued interest receivable 358 358 Financial liabilities Noninterest-bearing demand deposits (8,863) (8,863) NOW and money market deposits (13,539) (13,539) Savings deposits (10,647) (10,647) Certificates of deposit (7,391) (7,389) Accrued interest payable (102) (102)
While these estimates of fair value are based on management's judgment of the most appropriate factors, there is no assurance that were the Corporation to have disposed of such items at December 31, 1995, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. The estimated fair values at December 31, 1995 should not necessarily be considered to apply at subsequent dates. In addition, other assets and liabilities of the Corporation that are not defined as financial instruments are not included in the above disclosures, such as premises and equipment. Also, nonfinancial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. Excluded, among other items, are the estimated earnings power of core deposit accounts, the trained work force, customer goodwill and similar items. (Continued) F-22 86 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION Condensed financial information of Hastings Financial Corporation at December 31:
CONDENSED BALANCE SHEETS December 31, 1995 and 1994 1995 1994 ---- ---- ASSETS Cash and due from banks $ 687,8033,012 $ 564,555 ========= =========3,768 Investment in subsidiary bank 4,910,861 4,567,424 Dividends receivable 169,792 137,142 ----------- ----------- Total assets $ 5,083,665 $ 4,708,334 =========== =========== LIABILITIES Dividends payable $ 169,792 $ 137,142 TOTAL SHAREHOLDERS' EQUITY 4,913,873 4,571,192 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,083,665 $ 4,708,334 =========== ===========
Information regarding impaired(continued) F-23 87 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF INCOME Years ended December 31, 1995, 1994 and 1993 1995 1994 1993 ---- ---- ---- Dividends from subsidiary bank $ 330,964 $ 137,142 $ 129,306 Other expenses 756 2,795 7,178 ----------- ----------- ----------- INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY BANK 330,208 134,347 122,128 Equity in undistributed earnings of subsidiary bank 285,503 268,408 290,231 ----------- ----------- ----------- NET INCOME $ 615,711 $ 402,755 $ 412,359 =========== =========== ===========
(continued) F-24 88 NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993 1995 1994 1993 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 615,711 $ 402,755 $ 412,359 Adjustments to reconcile net income to net cash from operating activities Equity in undistributed earnings of subsidiary bank (285,503) (268,408) (290,231) Amortization of organizational costs 2,223 6,616 Change in dividends receivable (32,650) (137,142) ----------- ----------- ----------- Net cash from operating activities 297,558 (572) 128,744 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (137,142) (129,306) Repurchase and retirement of common stock (161,172) ----------- ----------- Net cash from financing activities (298,314) (129,306) ----------- ----------- ----------- Net change in cash and cash equivalents (756) (572) (562) Cash and cash equivalents at beginning of year 3,768 4,340 4,902 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,012 $ 3,768 $ 4,340 =========== =========== ===========
F-25 89 HASTINGS FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS of Financial Condition and Results of Operations SIX MONTHS ENDED JUNE 30, 1996 AND 1995 This discussion provides information about the consolidated financial condition and results of operations of Hastings Financial Corporation (the "Corporation") and its subsidiary National Bank of Hastings (the "Bank"), and should be read in conjunction with the Consolidated Financial Statements MATERIAL CHANGES IN FINANCIAL CONDITION - --------------------------------------- A comparison of the balance sheets from December 31, 1995, to June 30, 1996, illustrates only one change of significance, total loans grew from $ 25.2 million to $ 27.0 million. This loan growth represents a change of $ 1.8 million or an annualized rate of almost 15%. The loan growth occurred in the Bank's indirect lending portfolio. The residential mortgage loan portfolio decreased slightly from December 31, 1995, to June 30, 1996. The funding of loan growth resulted from several sources: maturities of securities; a reduction of cash and due from banks; net income from operations and modest deposit growth. MATERIAL CHANGES IN RESULTS OF OPERATIONS - ----------------------------------------- Analyzing results of the six month period ended June 30, 1995, with the six months ended June 30 ,1996, indicates three items of note. Interest income shifted from securities to loans and resulted in a $139,000 increase in total interest income. The change of interest income is primarily attributable to a movement of principal balances (volume) from a lower yielding securities portfolio to a higher yielding loan portfolio. The second item of note was a realization of $99,000 gain on a life insurance policy in 1995. The third item was a $43,000 reduction of Federal Deposit Insurance Corporation (FDIC) assessment premium from the 1995 period as followscompared to the 1996 period. The Bank's assessment rate changed to the FDIC minimum amount for 1996 which is approximately $2,000 per year. ACCOUNTING STANDARDS IMPLEMENTED IN 1996 - ---------------------------------------- In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The Statement requires review of such assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the asset. The Statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Corporation adopted SFAS No. 121 effective January 1, 1996. The adoption had no material effect on the Corporation's financial position or results of operations for the six months ended June 30, 1996. 57 90 The FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights, in May 1995. This Statement changes the accounting for mortgage servicing rights retained by the loan originator. Under this Statement, an entity that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells or securitizes those loans with servicing rights retained should allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values. Under current practice, all such costs are assigned to the loan. The costs allocated to mortgage servicing rights are to be recorded as a separate asset and amortized in proportion to, and over the life of, the net servicing income. The carrying value of the mortgage servicing rights are to be periodically evaluated for impairment. The Statement became effective for the Corporation as of January 1, 1996. The adoption of SFAS No. 122 did not have a material effect on the Corporation's financial position or results of operations for the six months ended June 30, 1996. In October 31, 1995:1995, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does not require, entities to use a fair value based method to account for stock-based compensation plans. If the fair value accounting encouraged by SFAS No. 123 is not adopted, entities must disclose the pro forma effect on net income and on earnings per common share had the fair value accounting been adopted. The Corporation has elected to not adopt SFAS No. 123. However, the Corporation will provide any required proforma disclosures in any future complete financial statements. The proforma disclosures are not required in noncomplete interim financial statements. 58 91 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF HASTINGS FINANCIAL CORPORATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS THEN ENDED 59 92
HASTINGS FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS June 30, 1996 and December 31, 1995 (Unaudited) 1996 1995 ---- ---- Average investment in impaired loans $750,000 Interest income recognized on impaired loans including interest income recognized on ASSETS Cash and due from banks $ 3,248,912 $ 4,258,464 Federal funds sold 2,800,000 2,600,000 ----------- ----------- Total cash basis $ 4,403 Interest income recognized on impaired loans onand cash basis $ -- Information regarding impaired loans at October 31,equivalents 6,048,912 6,858,464 Securities available for sale 1,631,728 1,655,233 Securities held to maturity (fair values: 1996 - $10,270,779; 1995 is as follows: Balance of impaired loans $663,687 Less portion for which no allowance- $10,659,280) 10,427,836 10,766,614 Loans 27,036,630 25,163,754 Allowance for loan losses is allocated -- -------- Portion(210,984) (200,031) ----------- ----------- 26,825,646 24,963,723 Premises and equipment, net 1,017,378 1,026,331 Accrued interest receivable 407,992 357,578 Other assets 487,242 511,814 ----------- ----------- $46,846,734 $46,139,757 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Noninterest-bearing demand $ 8,940,432 $ 8,863,243 NOW and money market 13,118,479 13,539,396 Savings 10,651,264 10,647,428 Certificates of impaired loan balancedeposit 8,025,296 7,391,487 ----------- ----------- 40,735,471 40,441,554 Accrued interest payable 104,726 101,989 Other liabilities 726,581 682,341 ----------- ----------- 41,566,778 41,225,884 Shareholders' equity Common stock, $1 par value: 400,000 shares authorized, 79,463 and 75,463 shares outstanding in 1996 and 1995, respectively 79,463 75,463 Capital surplus 730,581 590,581 Retained earnings 4,488,728 4,252,116 Net unrealized loss on securities available for which an allowance for credit losses is allocated $663,687 ======== Portionsale, net of allowancetax of $9,693 in 1996 and $2,208 in 1995, respectively (18,816) (4,287) ----------- ----------- 5,279,956 4,913,873 ----------- ----------- $46,846,734 $46,139,757 =========== ===========
See accompanying notes to consolidated financial statements. 60 93
HASTINGS FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Six months ended June 30, 1996 and 1995 (Unaudited) 1996 1995 ---- ---- Interest income Loans, including fees $ 1,259,642 $ 1,055,576 Securities U.S. Treasuries and federal agencies 235,929 321,942 State and political subdivisions 68,004 79,988 Other 16,568 18,807 Federal funds sold 51,885 16,532 ----------- ----------- 1,632,028 1,492,845 Interest expense 559,624 522,589 ----------- ----------- NET INTEREST INCOME 1,072,404 970,256 Provision for loan losses allocated9,252 3,082 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,063,152 967,174 Other income Service charges 175,235 148,913 Net gains on security sales and calls 1,302 Gain on life insurance policy 98,924 Other 19,290 5,579 ----------- ----------- 194,525 254,718 Other expenses Salaries and wages 326,799 337,941 Pension and other employee benefits 100,925 123,217 Occupancy expense of bank premises 72,679 60,118 FDIC assessment 1,197 44,671 Equipment expenses 62,162 68,242 Supplies and postage expense 41,895 40,262 Professional services 35,643 22,444 Other 134,185 97,075 ----------- ----------- 775,485 793,970 ----------- ----------- INCOME BEFORE FEDERAL INCOME TAX 482,192 427,922 Federal income tax expense 146,250 99,896 ----------- ----------- NET INCOME $ 335,942 $ 328,026 =========== =========== Earnings per common share $ 4.41 $ 4.26 ====== ======
See accompanying notes to consolidated financial statements. 61 94 HASTINGS FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Six months ended June 30, 1996 (Unaudited)
Net Unrealized Loss on Securities Total Common Capital Retained Available Shareholders' Stock Surplus Earnings for Sale Equity ------ ------- -------- --------- ------------- BALANCE, JANUARY 1, 1996 $ 75,463 $ 590,581 $4,252,116 $ (4,287) $4,913,873 Net income 335,942 335,942 Exercise of stock options 4,000 140,000 144,000 Cash dividends at $1.25 per share (99,330) (99,330) Change in net unrealized loss on securities available for sale, net of tax of $(7,485) (14,529) (14,529) ---------- ---------- ---------- ---------- ---------- BALANCE, JUNE 30, 1996 $ 79,463 $ 730,581 $4,488,728 $ (18,816) $5,279,956 ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 62 95
HASTINGS FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 1996 and 1995 (Unaudited) 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 335,942 $ 328,026 Adjustments to reconcile net income to net cash from operating activities Depreciation 37,535 39,697 Net gains on security sales and calls (1,302) Provision for loan losses 9,252 3,082 Net amortization of premiums and discounts on securities (207,266) 193 Net change in assets and liabilities Accrued interest receivable (50,414) (771) Other assets 32,057 29,074 Accrued interest payable 2,737 7,005 Other liabilities 114,702 (440,211) ----------- ----------- Net cash from operating activities 274,545 (35,207) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale (50,000) (500,000) Proceeds from sales of securities available for sale 1,500,000 Proceeds from maturities of securities available for sale 585,110 1,500,000 Proceeds from maturities and calls of securities held to maturity 1,525,000 Proceeds from principal paydowns on mortgage-backed securities 12,425 65,664 Net change in loans (1,871,175) (819,558) Purchases of premises and equipment, net (28,582) (4,505) ----------- ----------- Net cash from investing activities (1,352,222) 3,266,601 CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 293,917 (963,174) Dividends paid (169,792) (137,142) Exercise of options on common stock 144,000 Repurchase and retirement of common stock (161,172) ----------- ----------- Net cash from financing activities 268,125 (1,261,488) ----------- ----------- Net change in cash and cash equivalents (809,552) 1,969,906 Cash and cash equivalents at beginning of period 6,858,464 3,051,689 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,048,912 $ 5,021,595 =========== =========== Supplemental disclosure of cash flow information Cash paid during the impaired loan balance $178,533 ========period for Interest $ 556,887 $ 515,584 Income taxes 126,711 53,000
- -------------------------------------------------------------------------------- 74See accompanying notes to consolidated financial statements. 63 101 F & M BANCORP AND SUBSIDIARY96 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER(Unaudited) June 30, 1996 and 1995 The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10-01 of Regulation S-X. Accordingly, footnote disclosures, which would substantially duplicate the disclosures contained in the most recent audited financial statements, have been omitted. In the opinion of management of the Corporation, all adjustments necessary for a fair presentation of such financial information have been included. All such adjustments are of a normal recurring nature. The results of operations and cash flows for the six months ended June 30, 1996 may not be indicative of the results for the entire year. The accompanying unaudited consolidated financial statements should be read in conjunction with the notes to consolidated financial statements contained in the December 31, 1995 AND 1994 (UNAUDITED)consolidated financial statements. NOTE 1 - --------------------------------------------------------------------------------EARNINGS PER COMMON SHARE Earnings per common share are calculated on the basis of the weighted average number of shares outstanding adjusted for the effect of dilutive stock options. Earnings per common share are based on 76,130 and 76,915 shares for the six months ended June 30, 1996 and 1995, respectively. NOTE 2 - ACCOUNTING STANDARDS IMPLEMENTED IN 1996 In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The Statement requires review of such assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the asset. The Statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Corporation adopted SFAS No. 121 effective January 1, 1996. The adoption had no material effect on the Corporation's financial position or results of operations for the six months ended June 30, 1996. See accompanying notes to consolidated financial statements. 64 97 HASTINGS FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 1996 and 1995 NOTE 2 - ACCOUNTING STANDARDS IMPLEMENTED IN 1996 (Continued) The FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights, in May 1995. This Statement changes the accounting for mortgage servicing rights retained by the loan originator. Under this Statement, an entity that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells or securitizes those loans with servicing rights retained should allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values. Under current practice, all such costs are assigned to the loan. The costs allocated to mortgage servicing rights are to be recorded as a separate asset and amortized in proportion to, and over the life of, the net servicing income. The carrying value of the mortgage servicing rights are to be periodically evaluated for impairment. The Statement became effective for the Corporation as of January 1, 1996. The adoption of SFAS No. 122 did not have a material effect on the Corporation's financial position or results of operations for the six months ended June 30, 1996. In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does not require, entities to use a fair value based method to account for stock-based compensation plans. If the fair value accounting encouraged by SFAS No. 123 is not adopted, entities must disclose the pro forma effect on net income and on earnings per common share had the fair value accounting been adopted. The Corporation has elected to not adopt SFAS No. 123. However, the Corporation will provide any required proforma disclosures in any future complete financial statements. The proforma disclosures are not required in noncomplete interim financial statements. NOTE 3 - ALLOWANCE FOR LOAN LOSSES (CONTINUED) Installment loans on nonaccrual status totaled approximately $43,000 at October 31, 1995. These loans were not consideredSUBSEQUENT EVENT In July of 1996, the Corporation announced that it had signed a definitive agreement to be acquired by First Financial Bancorp, parent company of First National Bank of Southwestern Ohio. The transaction will be structured as a tax-free exchange and will be accounted for impairment, as they are collectively evaluated for impairment due tounder the smaller-balance homogeneous nature of the loans. - -------------------------------------------------------------------------------- 75pooling-of-interests method. (continued) 65 10298 PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT For information regarding the principal shareholders of BancorpFirst Financial and ownership of BancorpFirst Financial Common Stock by Bancorp'sFirst Financial's directors and executive officers, see "Item 12. Security Ownership of Certain Beneficial Owners and Management" in the BancorpFirst Financial Form 10-K, which is incorporated herein by reference. The following table sets forth certain information with respect to the only persons known to F&MHastings Financial to own beneficially more than 5% of the outstanding common stock of F&MHastings Financial as of the Record Date:
Number of Percent of Shares Name and Address Shares Outstanding ------------------------------------ --------- ----------------- H. Robert/Elizabeth A. Bradley 628 11.15% 3601 Manitou Park Road Rochester, IN 46975Richard T. Groos 28,472 35.39% Hastings Financial Corporation 241 West State Street Hastings, MI 49058 Larry J. Frederick/Patricia B. Hoffman 1,850 32.84% C/O Hoffman, Luhman & Busch 700 Life Building P.O. Box 99 Lafayette, IN 47902 Indiana Farmers Mutual Insurance Company 600 10.65% NBD Trust & Investment Management NBD Bank, NA One Indiana Square, Suite 624 Indianapolis, IN 46266Kornstadt 5,773 7.17% Hastings Financial Corporation 241 West State Street Hastings, MI 49058
The following table sets forth certain information regarding the number of shares of common stock of F&MHastings Financial beneficially owned by each director of F&MHastings Financial and by all directors and executive officers of F&MHastings Financial as a group as of the Record Date:
Number of Percent of Shares Name Shares Outstanding -------------------- --------- ------------------------------------ Wendell B. Bearss 34Jack E. Echtinaw 875 (1) .60% H.1.09% Richard T. Groos (2) 28,472 35.39% Thomas T. Groos (2) 2,660 (3) 3.31% Michael D. Humphreys 200 (4) 0.25% Mark R.S. Johnson 200 0.25% Larry J. Kornstadt 5,773 (5) 7.17% Wade W. Nitz 150 0.19% Robert Bradley 628 (2) 11.15% Carol J. Bridge 20 (3) .36% William J. Gordon 106 (4) 1.88% J. Frederick Hoffman 1,850 (5) 32.84% Robert E. Peterson 281W. Sherwood 2,250 (6) 4.99% V. Lorene Rauschke 66 1.17%2.80% David C. Wren 475 (7) 0.59% All executive officers and directors as a group (9(11 persons) 3,021 53.63%
-------------------- (1) Of these, 24 shares are owned jointly with Mr. Bearss's wife. (2) Of these, 200 shares and 10 shares are owned by Mr. Bradley's wife and son, respectively, for which Mr. Bradley41,110 51.09% -------------------- (1) All of Mr. Echtinaw's shares are owned jointly with his wife. (2) Thomas T. Groos is the son of Richard T. Groos. The number of shares shown for each individual does not include shares owned by the other. Thomas T. Groos disclaims beneficial ownership of shares owned by Richard T. Groos and Richard T. Groos disclaims beneficial ownership of shares owned by Thomas T. Groos. (3) Of these, 1,460 shares are owned by Mr. Groos' children, for which Mr. Groos disclaims beneficial ownership. (4) All of Mr. Humphreys' shares are owned jointly with his wife. (5) Of these, 5,216 shares are owned jointly with Mr. Kornstadt's wife. (6) Of these, 2,000 shares are owned by a trust, of which Mr. Sherwood is the trustee and beneficiary. Mr. Sherwood disclaims beneficial ownership of the shares owned by the trust. (7) Of these, 100 shares are owned by Mr. Wren's wife, for which Mr. Wren disclaims beneficial ownership. (3) All shares are owned jointly with Ms. Bridge's husband. (4) Of these, 6 shares are owned by Mr. Gordon's wife, for which Mr. Gordon disclaims beneficial ownership, 25 shares are owned jointly with Mr. Gordon's wife, and 30 shares are owned jointly with Mr. Gordon's children and grandchildren. (5) Of these, 50 shares are owned by Mr. Hoffman's wife, for which Mr. Hoffman disclaims beneficial ownership. (6) Of these, 50 shares are owned by Mr. Peterson's wife, for which Mr. Peterson disclaims beneficial ownership. 76 66 10399 COMPARATIVE MARKET AND DIVIDEND INFORMATION Nature Of Trading Market - ------------------------ The BancorpFirst Financial Common Stock is quoted on the Nasdaq National Market System under the symbol "FFBC". On _______November __, 19__,1996, the last reported sale price of BancorpFirst Financial Common Stock as reported on the Nasdaq National Market System was $______$_____ per share. The F&MHastings Financial Common Stock is not traded on an established public market. The last known trading price of F&MHastings Financial Common Stock was $450.00$54.75 per share in August 1994.on December 14, 1995. As there is not an established public trading market for the shares of F&MHastings Financial Common Stock, the stock is not liquid and the price indicated above may not reflect the prices which would be paid for such shares on an active market. The information should not necessarily be relied upon when determining the value of a shareholder's investment. The following table sets forth, for the periods indicated, the high and low sales prices per share of BancorpFirst Financial Common Stock as reported on the Nasdaq National Market System. All prices have been adjusted to give retroactive effect to stock dividends and stock splits.
BANCORP BANCORPFIRST FINANCIAL FIRST FINANCIAL HIGH LOW ------- ---------------------- --------------- 1993 ---- 1992 First Quarter $22.09 $19.64 Second Quarter 23.18 21.00 Third Quarter 23.86 22.23 Fourth Quarter 24.55 23.18 1993 First Quarter 25.05 23.40$25.05 $23.40 Second Quarter 26.40 24.15 Third Quarter 32.55 25.50 Fourth Quarter 33.45 30.90 1994 ---- First Quarter 39.80 29.20 Second Quarter 31.60 30.00 Third Quarter 32.20 30.20 Fourth Quarter 33.75 29.50 1995 ---- First Quarter 34.75 32.50 Second Quarter 34.50 33.00 Third Quarter 35.50 33.00 Fourth Quarter (1)35.25 33.00 1996 ---- First Quarter 35.50 33.50 Second Quarter 35.00 31.50 Third Quarter _____ _____ Fourth Quarter through November __, 1996 _____ _____
-------------------- (1) Through ______ __, 199567 100 The following information reflects actual trade transactions in F&MHastings Financial Common Stock made during 1993, 1994, 1995 and through October 31, 1995.November __, 1996, for which management is aware of both the number of shares traded and the selling price. Management is aware of other trades not listed below, but is not aware of the selling price for such trades. The information should not necessarily be relied upon when determining the value of a shareholder's investment.
F&MHastings Financial Trades In ----------------------------------------------------------------------------------------------------- 1993 1994 1995(1) 1996(2) -------- -------- --------- --------- Number of trades 5 9 None7 2 1 0 Number of shares traded 40 55754 1,225 1,038 N/A Selling price $435 $450$43.00-$48.50 $50.75 $54.75 N/A - ------------------- (1) Does not include 2,904 shares repurchased at $55.50 per share and retired by Hastings Financial. (2) Through November __, 1996
- ------------------- (1) Through October 31, 1995 As of ______November __, 1996, there were approximately _,________ holders of record of the BancorpFirst Financial Common Stock. As of _________November __, 1996, F&MHastings Financial had 10078 shareholders of record. 77 104 Dividends - --------- The following table sets forth the per share cash dividends declared on BancorpFirst Financial and F&MHastings Financial Common Stock, respectively, for each quarter since January 1, 1992. Bancorp1993. First Financial dividends have been adjusted to give retroactive effect to all stock dividends and stock splits.
BANCORP F&M ------- ---FIRST FINANCIAL HASTINGS FINANCIAL --------------- ------------------ 1993 ---- 1992 First Quarter $.1800 $26.00 Second Quarter .1800 .00 Third Quarter .1800 .00 Fourth Quarter$ .1980 .00 1993 First Quarter .1980 26.00 Second Quarter .1980 .00 Third Quarter .1980 .00 Fourth Quarter .2160 .00$ 1.65 1994 ---- First Quarter .2160 26.00 Second Quarter .2160 .00 Third Quarter .2160 .00 Fourth Quarter .3200 .001.75 1995 ---- First Quarter .2600 30.00 Second Quarter .2600 .00 Third Quarter .2600 .00 Fourth Quarter .3000 .002.25 1996 ---- First Quarter .3000 Second Quarter .3000 1.25 Third Quarter .3000 ______ Fourth Quarter through November __, 1996 .____ ______
F&M68 101 Hastings Financial anticipates paying cash dividends in an amount not to exceed the greatera regular dividend of (a) 30% of its net earnings for the year ending$1.25 per share on or before December 31, 1995, or (b) $198,000.1996. In the Merger Agreement, BancorpFirst Financial and F&MHastings Financial agreed to cooperate with each other to ensure that, from December 31, 1995 until the Effective Time, the shareholders of F&M receive a quarterly cash dividend from either F&M or Bancorp and that during the quarter in which the Effective Time occurs, the shareholders of the Merger occursHastings Financial receive a cash dividend from either Hastings Financial or First Financial and that such shareholders of F&M do not receive dividends from both F&MHastings Financial and Bancorp.First Financial. The future dividend policy of BancorpFirst Financial is subject to the discretion of Bancorp'sFirst Financial's Board of Directors, cash needs, general business conditions and dividends from subsidiaries. For certain restrictions on the payment of dividends by BancorpFirst Financial and F&MHastings Financial see "COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS--DividendRIGHTS-- Dividend Rights." 7869 105102 COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS The following summary comparison of the terms of the common stock of F&MHastings Financial and Bancorp,First Financial, and the rights of holders thereof, does not purport to be complete and is qualified in its entirety by reference to Bancorp's and F&M'sFirst Financial's Articles of Incorporation, Bancorp'sHastings Financial's Articles of Incorporation, First Financial's Code of Regulations and F&M'sHastings Financial's By-Laws. Various features of the Articles of Incorporation and Code of Regulations of BancorpFirst Financial differ from F&M'sHastings Financial's Articles of Incorporation and By-Laws. The following discussion summarizes the differences that are deemed to be material by Bancorp.First Financial. Authorized But Unissued Shares Bancorp's- ------------------------------ First Financial's Articles of Incorporation authorize the issuance of 25,000,000 shares, par value $8.00 per share, of BancorpFirst Financial Common Stock, of which 12,568,64113,374,810 shares were issued and outstanding at SeptemberJune 30, 1995.1996. The remaining authorized but unissued shares of BancorpFirst Financial Common Stock may be issued upon authorization of the Board of Directors without prior shareholder approval. F&M'sHastings Financial's Articles of Incorporation authorize the issuance of 6,000400,000 shares, without par value $1.00 per share, of which 5,63380,463 shares were issued and outstanding at September 30, 1995.July 31, 1996. Dividend Rights - --------------- The holders of F&MHastings Financial and BancorpFirst Financial Common Stock are entitled to dividends and other distributions when, as and if declared by their respective Boards of Directors out of funds legally available therefor. Subject to certain regulatory restrictions, dividends may be paid in cash, property or shares of common stock, unless the entity is insolvent or the dividend payment would render it insolvent. In general, dividends by F&M are limited by Indiana law to the balance of its undivided profit account adjusted for statutorily-defined bad debts, losses and all other expenses. The amount of dividends, if any, that may be declared by BancorpFirst Financial following the purchase will necessarily depend upon many factors, including without limitation, future earnings, capital requirements, business conditions of subsidiaries (since BancorpFirst Financial will be dependent upon dividends paid to it by its subsidiaries) and the discretion of Bancorp'sFirst Financial's Board of Directors. Dividends paid to BancorpFirst Financial by its subsidiary financial institutions are subject to the regulations of various regulatory authorities. A Federal Reserve Board Policy Statement provides that cash dividends paid by a bank holding company should meet the following two guidelines: (1) the organization's net income available to common shareholders over the past year should be sufficient to fully fund the dividends and (2) the prospective rate of earnings retention by the organization appears consistent with capital needs, asset quality, and overall financial condition. BancorpFirst Financial has complied with the first guideline since its organization in 1983 and believes it has also complied with the second guideline. 70 103 Interested Shareholders - ----------------------- Hastings Financial's Articles of Incorporation provides that an "Interested Shareholder" shall mean any person (other than Hastings Financial, National Bank of Hastings, the incorporator of Hastings Financial, any person who was the beneficial owner of 10.0% or more of National Bank of Hastings common stock prior to its acquisition by Hastings Financial, or any person who is or was the beneficial owner of 10.0% or more Hastings Financial Common Stock prior to the acquisition of National Bank of Hastings) who meets any one of the following three requirements: (a) is the beneficial owner, directly or indirectly, of 10.0% or more of the voting power of the outstanding voting stock; (b) is an affiliate of Hastings Financial and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10.0% or more of the voting power of the then outstanding voting stock; or (c) is an assignee of or has otherwise succeeded to any shares of voting stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. Hastings Financial's Articles of Incorporation require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of Hastings Financial Common Stock, and the affirmative vote of 2/3 or more of the outstanding voting shares not owned directly or indirectly by any Interested Shareholder or an affiliate or associate of the Interested Shareholder, for the authorization and adoption of: (a) any merger or consolidation with any Interested Shareholder or any other corporation which is, or after such merger or consolidation would be, an affiliate of an Interested Shareholder; (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition, either in one transaction or a series of transactions, to or with any Interested Shareholder, or affiliate of such shareholder, of any assets of Hastings Financial having, measured at the time the transaction or transactions are approved by the Board of Directors, an aggregate fair market value of 10.0% or more, as measured as of the end of the most recently ended fiscal quarter, of Hastings Financial's net worth; (c) the issuance or transfer of any securities of Hastings Financial to any Interested Shareholder, or affiliate of such shareholder, in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of 5.00% or more of the total market value of the outstanding shares of Hastings Financial Common Stock; 71 104 (d) the adoption of any plan or proposal for the liquidation or dissolution of Hastings Financial proposed by or on behalf of any Interested Shareholder or affiliate of such shareholder; or (e) any reclassification of securities or recapitalization of Hastings Financial, any merger or consolidation with any of its subsidiaries or any other transaction, whether or not with or into or otherwise involving an Interested Shareholder, which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities which are directly or indirectly owned by any Interested Shareholder or affiliate of such shareholder. The higher shareholder vote for the above transactions will not be required for transactions where Hastings Financial shareholders will not receive any cash or other consideration if the transaction is approved by a majority of Hastings Financial's Continuing Directors. If Hastings Financial shareholders will receive cash or other consideration under the terms of the proposed transaction, the higher shareholder vote will not be required if the transaction is approved by a majority of Hastings Financial's Continuing Directors or if the consideration to be received meets certain requirements described in Hastings Financial's Articles of Incorporation. In such situations, only the affirmative vote required by Michigan law or other provisions of the Articles of Incorporation is required. FIRST FINANCIAL DID NOT OWN SHARES OF HASTINGS FINANCIAL COMMON STOCK PRIOR TO SIGNING THE MERGER AGREEMENT AND DOES NOT INTEND TO OWN SHARES PRIOR TO CONSUMMATION OF THE MERGER. FIRST FINANCIAL DOES NOT THEREFORE QUALIFY AS AN INTERESTED SHAREHOLDER AND THE ABOVE PROVISIONS ARE NOT APPLICABLE TO THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. First Financial's Articles of Incorporation or Code of Regulations do not contain a similar separation of shareholders owning a specified percentage of its outstanding shares. First Financial is not aware of any shareholders who beneficially own 5.00% or more of its outstanding common shares. Continuing Directors - -------------------- Hastings Financial's Articles of Incorporation provides that a "Continuing Director" means each member of the first Board of Directors, any member of the Board who is unaffiliated with the Interested Shareholder and was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder and any successor of a Continuing Director who is unaffiliated with the Interested Shareholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board. Of the nine directors presently serving on Hastings Financial's Board, all are classified as Continuing Directors. First Financial's Articles of Incorporation and Code of Regulations do not contain a similar separation of directors. 72 105 Directors - --------- After the Merger, F&M'sHastings Financial's Board of Directors will be dissolved and Bancorp'sFirst Financial's Board of Directors will be the Board of Directors for the Surviving Corporation. The number of directors of BancorpFirst Financial can be no less than nine and no more than 25. BancorpFirst Financial currently has 15 directors, divided into three classes of five directors. The size of the Board can be increased or decreased at any time by the affirmative vote of 2/3 of the whole authorized number of directors or by a majority vote of the shareholders entitled to vote on the proposal at a meeting of the shareholders called for the purpose of electing directors and at which a quorum is present, either in person or by proxy. First Financial's Board of Directors may not, under provisions of First Financial's Code of Regulations, increase the authorized number of directors by more than three positions during any period between annual meetings. Directors are elected to three-year terms, with the term of office of one class expiring each year. Shareholders of BancorpFirst Financial annually elect one-third of its Board of Directors. This method of election could be considered an impediment for a takeover of control of BancorpFirst Financial by third parties. 79 106 F&M's By-Laws fixHastings Financial's Articles of Incorporation provide that the number of directors at nine members, who shall be determined by resolution adopted by the affirmative vote of at least 80% of the Board of Directors and a majority of the Continuing Directors. Hastings Financial currently has nine directors, divided into three equal classes of three directors. Directors are elected to three-year terms, with the term of one class expiring each year. According to the By-Laws, shareholders of F&M shall annually elect one-third of its Board of Directors,year, which method of election could be considered an impediment for a takeover or change of control of F&MHastings Financial by third parties. Despite F&M's By-Laws, itsA majority of First Financial's directors in office at any time, though less than a majority of the whole authorized number of directors, may, by a vote of a majority of their number, fill any director's office that is created by an increase in the number of directors or by a vacancy. Any directors so chosen will hold office for the remaining length of the term; a vote by First Financial shareholders is not required. An 80% majority of Hastings Financial's directors then in office and at least a majority of Continuing Directors is required to fill any vacancies in Hastings Financial's Board or fill any newly created director positions. Any directors so chosen may hold office only until the next annual meeting, at which time a vote by shareholders is required. One or more directors of Hastings Financial may be removed at any time, with or without cause, by either: (a) the affirmative vote of at least 80% of the Board of Directors currently consistsand the affirmative vote of seven members electeda majority of Continuing Directors; or (b) the affirmative vote of at least 80% of the outstanding shares of Hastings Financial Common Stock at a meeting of shareholders called for termsthat purpose. A First Financial director may be removed only if a court of one year each. In itslaw finds such director guilty of a felony or if the director has breached his fiduciary duty under the laws of Ohio. 73 106 First Financial's Code of Regulations Bancorp has an age limitation preventing election or re-election of directors who have reached the age of 70 years or older. F&M'sHastings Financial's Articles of Incorporation orand By-Laws do not contain any such age limitation. Quorum For Shareholders' Meetings - --------------------------------- Except as provided by law, the holders of record of a majority of outstanding shares, in person or by proxy, are required for a quorum at all BancorpFirst Financial shareholders' meetings. Except as provided by law,in its Articles of Incorporation, or By-Laws, a majority of the outstanding voting shares, which may be voted on the business to be transacted at any F&M shareholders' meeting,represented in person or by proxy, shall constitute a quorum.quorum at any Hastings Financial shareholders' meeting. Meeting Participation By Use Of Communication Equipment - ------------------------------------------------------- Hastings Financial's By-Laws allow shareholders to participate in a shareholders' meeting and directors to participate in a directors' meeting by using a conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other. First Financial's Articles of Incorporation and Code of Regulations make no provision for meeting participation using communication equipment, but Ohio statutes allow directors to participate in a directors' meeting using such equipment. Voting Rights - ------------- The holders of F&MHastings Financial Common Stock and BancorpFirst Financial Common Stock are entitled to one vote per share on all matters presented for shareholder vote. Shareholders of BancorpFirst Financial or Hastings Financial do not have cumulative voting rights in the election of directors. F&M's Articles of Incorporation provide for cumulative voting. Special Meetings - ---------------- Special Meetings of the shareholders of BancorpFirst Financial may be called for any purpose by the Board of Directors or by any three or more shareholders owning, in the aggregate, not less than 50% percent of the stock of Bancorp.First Financial. Notice of the meeting, including the purpose or purposes of the meeting, must be mailed, postage prepaid, to every shareholder of record at the address appearing on Bancorp'sFirst Financial's books at least 10 days prior to the date of the meeting. 74 107 Special Meetings of the shareholders of F&MHastings Financial may be called by the Chairman of the Board of Directors, the President or the Secretary pursuant to a resolution by the Board of Directors or upon receipt of a request in writing, stating the purpose or purposes of the special meeting requested, signed by shareholders of record owning in the aggregate, not less than one-fourtha majority of allHastings Financial's issued and outstanding shares of capital stock entitled to vote.shares. Notice of the meeting, including the purpose or purposes of the meeting, must be delivered or mailed, postage prepaid, at leastnot less than 10 days or more than 60 days prior to the date of the meeting to every shareholder of record at the address appearing on F&M'sHastings Financial's books. Not less than 20 days notice is required if the purpose of the meeting is to vote on a plan of merger or consolidation or on a sale, lease, exchange or other disposition of all, or substantially all, the property and assets of Hastings Financial. Preemptive Rights - ----------------- As permitted by law, neither Bancorp'sFirst Financial's nor F&M'sHastings Financial's Articles of Incorporation provide for preemptive rights. Liquidation Rights - ------------------ In the event of liquidation, the holders of shares of BancorpFirst Financial Common Stock are entitled, subject to the payment in full of Bancorp'sFirst Financial's debts and other liabilities, to receive pro rata any assets distributable to shareholders with respect to the number of shares held by them. The same applies to F&M. 80 107Hastings Financial. Redemption And Assessment - ------------------------- Shares of BancorpFirst Financial and F&MHastings Financial Common Stock are not subject to further call or assessment. BancorpA bank holding company may redeem or purchase shares of its Common Stock with funds legally available therefor, provided it gives prior notice to the Federal Reserve Board if the consideration to be paid for the purchase or redemption, when aggregated with the consideration paid for all purchases or redemptions for the preceding last 12 months, equals or exceeds 10% of Bancorp'sits consolidated net worth. This prior notification is not required if the bank holding company (a) exceeds the thresholds established for a "well-capitalized" institution both before and after the redemption, (b) received a composite "1" or "2" rating at its most recent regulatory inspection, and (c) is not the subject of any unresolved supervisory issues. First Financial currently meets these three requirements and is not required to notify the Federal Reserve Board before purchasing shares of its common stock. Redemptions may not be made when BancorpFirst Financial is insolvent or, as a result of the redemption, would be rendered insolvent. Redemptions or repurchases of F&MHastings Financial Common Stock are also subject to regulatory limitations. 75 108 Amendments To Articles And Code Of Regulations/By-Laws - ------------------------------------------------------ The Articles of Incorporation for BancorpFirst Financial may be amended, altered, changed or repealed by following the procedures prescribed by the laws of the State of Ohio at the time of amendment. F&M'sExcept as otherwise required in Hastings Financial's Articles of Incorporation, its Articles may be amended, altered, changed or repealed by following the procedures prescribed by the laws of the State of Michigan at the time of amendment. Certain provisions of Hastings Financial's Articles of Incorporation pertaining primarily to the Board of Directors require the affirmative vote of at least 75%80% of the outstanding common shares to amend or repeal such provisions. Amendment or repeal of certain provisions of Hastings Financial's Articles of Incorporation pertaining primarily to shareholder approval of business combinations involving Interested Shareholders require the affirmative vote of at least 80% of the outstanding common shares entitled to vote, including the affirmative vote of not less than 2/3 of Hastings Financial's shares not owned directly or indirectly by any Interested Shareholder. If amendments pertaining to amend, alter, changethe Board of Directors or repeal any provisionshareholder approval of business combinations involving Interested Shareholders are approved by a majority of Hastings Financial's Continuing Directors, the number of affirmative votes prescribed by Michigan law will be required instead of the Articles. F&M'shigher affirmative votes described above. Hastings Financial's By-Laws may be amended by a majority vote of the entire Board of Directors at any regular or special meeting, without prior notice of the Board. Bancorp'sproposed amendment required, or by a majority vote of total shares outstanding at any regular or special meeting if notice of the proposed amendment was included in the meeting notice. First Financial's Code of Regulations may be amended by a majority vote of shareholdersshares outstanding at any regular or special meeting of shareholders. Seventy-Five Percent (75%) Affirmative Shareholder Vote Requirement F&M's Articles of Incorporation require the affirmative vote of at least 75% of F&M's outstanding common shares entitled to vote to (1) amend, alter, change, or repeal any provision of the Articles of Incorporation; (2) authorize a special corporate transaction such as a merger, share exchange or sale of all or substantially all of the assets of F&M; and (3) approve a liquidation or dissolution of F&M. Bancorp's Articles of Incorporation and Code of Regulations do not contain any such voting requirements. Restrictions On Resale Of Bancorp Common Stock The issuance of the shares of Bancorp Common Stock in connection with the Merger has been registered under the Securities Act. Such shares may be traded freely and without restriction under federal and state securities laws by those shareholders not deemed to be "affiliates" of F&M as that term is defined in Rules 144 and 145 under the Securities Act. "Affiliates" are generally defined as persons who control, are controlled by, or are under common control with F&M at the time of the F&M Special Meeting. Accordingly, affiliates of F&M will generally include the directors and executive officers of F&M as well as F&M's largest shareholders. In general, shares of Bancorp Common Stock received by affiliates of F&M pursuant to the Merger may not be publicly resold without registration under the Securities Act except pursuant to the volume and manner of sale limitations and other requirements provided in Rules 144 and 145. This Proxy Statement-Prospectus does not cover any resales of Bancorp Common Stock received by affiliates of F&M. Any owner of F&M Common Stock who becomes an affiliate of Bancorp will be subject to similar restrictions under Rule 144. Pursuant to the terms of the Merger Agreement, in order for the Merger to qualify for pooling-of-interests accounting treatment, none of the Bancorp Common Shares held by shareholders who are affiliates of Bancorp or F&M may be sold until such time as financial results covering at least thirty days of post-Merger combined operations of Bancorp and F&M have been published (the "Publication Date"). As a result, no shareholder who is an affiliate of Bancorp or F&M will be permitted to sell any Bancorp Common Shares for the period from the Effective Time to the Publication Date. 81 108 In addition, in order to preserve the proposed tax-free status of the Merger and in order to ensure that the continuity of shareholder interest requirements related thereto, and set forth in Treasury Regulation Section 1.368-1(b), will be satisfied with respect to the Merger, certain shareholders of F&M participating in the Merger will be required to execute a letter (the "Tax Letter") indicating the number of Bancorp Common Shares, if any, received by such shareholder in connection with the Merger with respect to which such shareholder has a present plan or intention to dispose of or sell. Except as provided above, there will be no restrictions on the transfer of shares of Bancorp Common Stock issued by Bancorp pursuant to the Merger. BancorpFirst Financial Shareholder Rights Plan - --------------------------------------- On November 26, 1993, BancorpFirst Financial adopted a shareholder rights plan (the "Plan") and declared a dividend of one right on each outstanding share of BancorpFirst Financial Common Stock ("Right") to shareholders of record as of December 6, 1993. Each share of BancorpFirst Financial Common Stock issued after December 6, 1993 will include one Right. Under the Plan, the Rights will actually be distributed only if one or more of certain designated actions involving BancorpFirst Financial Common Stock occur. See Note 1715 of Bancorp's 1994First Financial's 1995 Financial Statements for more information on the Plan. 8276 109 ADJOURNMENT OF THE SPECIAL MEETING The shareholders of F&MHastings Financial are asked to approve a proposal to permit the adjournment of the Special Meeting, if necessary, to solicit additional proxies with respect to the approval of the Merger Agreement. The Merger Agreement must be approved by the affirmative vote of at least 75%a majority of the outstanding shares of F&MHastings Financial Common Stock. If such matter does not receive the requisite vote of shareholders at the Special Meeting and does not receive a sufficient number of negative votes to assure the failure of the matter, the Board of Directors may decide to adjourn the Special Meeting to solicit additional proxies. If the Board of Directors decides to adjourn the Special Meeting with respect to the Merger Agreement, the Chairman of the Special Meeting will request a motion that the Special Meeting be adjourned for up to 30 days. An adjournment of up to 30 days would not require either the setting of a new meeting date or the giving of notice of the adjourned meeting. Each proxy given in connection with the Special Meeting will be voted on a motion for adjournment in accordance with the instructions contained therein. If no contrary instructions are given, each proxy will be voted in favor of any motion to adjourn the Special Meeting. The holders of the majority of the shares of F&MHastings Financial represented in person or by proxy at the Special Meeting will be required to approve a motion to adjourn the Special Meeting. If a motion to adjourn the Special Meeting is approved, no vote will be taken on the Merger Agreement at the Special Meeting on ____________December __, 1996, but the Merger Agreement will be voted upon at the adjourned meeting. Unless revoked prior to its use, any proxy solicited for the Special Meeting will continue to be valid and will be voted in accordance with the instructions contained therein at the adjourned meeting. Because the Board of Directors recommends that the shareholders vote for the Merger Agreement, the Board of Directors similarly recommends that the shareholders vote FOR the proposal to adjourn the Special Meeting, which will facilitate the approval of the Merger Agreement. Such an adjournment would be disadvantageous to shareholders who oppose the Merger Agreement because the adjournment will give F&MHastings Financial additional time to solicit votes in favor of the Merger Agreement, thereby increasing the chances of passing the Merger Agreement proposal. F&MHastings Financial has no reason to believe that an adjournment of the Special Meeting will be required. If a quorum is not present at the Special Meeting, none of the proposals will be acted upon, and the Board of Directors will adjourn the Special Meeting to a later date in order to solicit additional proxies to assure the presence of a quorum. The proposal to approve a motion to adjourn the Special Meeting does not apply to an adjournment relating to the absence of a quorum. 8377 110 EXPERTS The consolidated financial statements of BancorpFirst Financial incorporated by reference in First Financial Bancorp.'sFinancial's Annual Report on Form 10-K for the year ended December 31, 1994,1995, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of F&MHastings Financial at April 30,December 31, 1995 and 1994 and for the yearyears then ended appearing in this Proxy Statement-Prospectus have been audited by Crowe, Chizek and Company LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of Hastings Financial for the year ended December 31, 1993 appearing in this Proxy Statement-Prospectus have been audited by Beene, Garter & Co., independent auditors, whose report dated January 14, 1994 expressed an unqualified opinion on those statements. The financial statements for that year are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. LEGAL MATTERS The legality of the shares of BancorpFirst Financial Common Stock to be issued in the Merger described herein and certain additional legal matters will be passed upon by Frost & Jacobs, 2500 PNC Center, 201 East Fifth Street, Cincinnati, Ohio 45202. Certain legal matters in connection with the Merger will be passed upon for F&MHastings Financial by Ice Miller DonadioWerner & Ryan, One American Square, Indianapolis, Indiana 46282-0002. 84Blank Co., L.P.A., 7205 West Central Avenue, Toledo, Ohio 43617. 78 111 APPENDIX A PLAN AND AGREEMENT OF MERGER BETWEEN FIRST FINANCIAL BANCORP. AND F & M BANCORP SEPTEMBER 11, 1995HASTINGS FINANCIAL CORPORATION 112 PLAN AND AGREEMENT OF MERGER BETWEEN FIRST FINANCIAL BANCORP. AND HASTINGS FINANCIAL CORPORATION TABLE OF CONTENTS -----------------
Page ---- 1. Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 1 - 2. The Merger; Effective Time of the Merger . . . . . . . . . . . . . . .- 2 - 3. Governing Law; Articles of Incorporation . . . . . . . . . . . . . . .- 2 - 4. Regulations1 2. Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . 2 -3. Governing Law; Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . . . . 2 - 6. Conversion of Shares in the Merger . . . . . . . . . . . . . . . . . .- 2 -. . . . . . . . . . . . . . . . . . . . 3 6.1 FFB's Common Stock . . . . . . . . . . . . . . . . . . . . . . . . - 2 -. . . . . . . . . . . . . . . . . . . 3 6.2 F&M SharesHFC's Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -. . . . . . . . . . . . . . . 3 6.3 Consideration:Consideration; Exchange Ratio.Ratio . . . . . . . . . . . . . . . . . . -. . . . . . . . . . . . . . . . . . . 3 - 6.4 Surrender of F&MHFC Certificates . . . . . . . . . . . . . . . . . . - 3 -. . . . . . . . . . . . . . . . . . . 4 6.5 Fractional Interests . . . . . . . . . . . . . . . . . . . . . . . - 4 - 6.6 Bank Certificates . . . . . . . . . . . . . . . . . . . . . . . . - 4 - 7. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . .- 4 -. . . . . . . . . . . . . . . . . . . . 5 8. Approval of the Shareholders; Filing of Articles of Merger . . . . . .-. . . . . . . . . . . . . . . . . . . . . . 5 - 9. F&M'sHFC's Representations and Warranties . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . . . . 5 - 9.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . -. . . . . . . . . . . . . . . . . . . 5 - 9.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 - 9.3 Information Furnished by F&M . . . . . . . . . . . . . . . . . . . - 5 -6 9.3 List of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 9.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -. . . . . . . . . . . . . . . . . . . 6 9.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . -. . . . . . . . . . . . . . . . . . . 6 - 9.6 Good and Marketable Title . . . . . . . . . . . . . . . . . . . . - 6 -. . . . . . . . . . . . . . . . . . . 7 9.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -. . . . . . . . . . . . . . . . . . . 7 - 9.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . - 7 -. . . . . . . . . . . . . . . . . . . 8 9.9 Contracts and Agreements . . . . . . . . . . . . . . . . . . . . . - 7 -. . . . . . . . . . . . . . . . . . . 8 9.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -. . . . . . . . . . . . . . . . . . . 9 9.11 Litigation and Proceedings . . . . . . . . . . . . . . . . . . . - 8 -. . . . . . . . . . . . . . . . . . . . 9
i 113 9.12 Material Contracts; No Conflict with Other Instruments . . . . . - 8 -. . . . . . . . . . . . . . . . . . . . 9 9.13 Governmental Authorizations and Filings . . . . . . . . . . . . . - 8 -. . . . . . . . . . . . . . . . . . . 9 9.14 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . - 8 -. . . . . . . . . . . . . . . . . . . . 9 9.15 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -. . . . . . . . . . . . . . . . . . . 10 9.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . - 9 -
- i - 113
. . . . . . . . . . . . . . . . . . . 10 9.17 Validity of Contemplated Transactions . . . . . . . . . . . . . .- 10 -. . . . . . . . . . . . . . . . . . . . 11 10. FFB's Representations and Warranties . . . . . . . . . . . . . . . . - 10 -. . . . . . . . . . . . . . . . . . . . 11 10.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . .- 10 -. . . . . . . . . . . . . . . . . . . . . 11 10.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -. . . . . . . . . . . . . . . . . . . . 12 10.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . .- 11 -. . . . . . . . . . . . . . . . . . . . . 12 10.4 Shares to be Issued . . . . . . . . . . . . . . . . . . . . . . .- 11 -. . . . . . . . . . . . . . . . . . . . 12 10.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . .- 11 -. . . . . . . . . . . . . . . . . . . . . 12 10.6 Good and Marketable Title . . . . . . . . . . . . . . . . . . . .- 11 -. . . . . . . . . . . . . . . . . . . . 13 10.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 12 -. . . . . . . . . . . . . . . . . . . . 13 10.8 Absence of Certain Changes or Events . . . . . . . . . . . . . .- 12 - 10.9 Information Furnished by FFB . . . . . . . . . . . . . . . . . .- 12 - 10.10. . . . 13 10.9 Litigation and Proceedings . . . . . . . . . . . . . . . . . . .- 12 - 10.11. . . . . . . . . . . . . . . . . . . . . 14 10.10 Material Contracts; No Conflict with Other Instruments . . . . - 13 - 10.12. . . . . . . . . . . . . . . . . . . . . 14 10.11 Governmental Authorizations and Filings . . . . . . . . . . . - 13 - 10.13. . . . . . . . . . . . . . . . . . . . . 14 10.12 Consents and Approvals . . . . . . . . . . . . . . . . . . . . - 13 - 10.14. . . . . . . . . . . . . . . . . . . . . 14 10.13 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 - 10.15. . . . . . . . . . . . . . . . . . . . . 15 10.14 Validity of Contemplated Transactions . . . . . . . . . . . . - 13 -. . . . . . . . . . . . . . . . . . . . . 15 11. Conduct of Business Pending the Merger . . . . . . . . . . . . . . . - 14 - 11.1 Negative Covenants of F&M . . . . . . . . . . . . . . . . . . . . - 14 -15 11.1 Negative Covenants of HFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 11.2 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 - 11.3 Respective Efforts of FFB and F&M . . . . . . . . . . . . . . . - 14 -. . . . 15 11.3 HFC Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 11.4 Purchase of "Tail Coverage". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 12. Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . - 15 -. . . . . . . . . . . . . . . . . . . . 16 12.1 Access and Information . . . . . . . . . . . . . . . . . . . . - 15 -. . . . . . . . . . . . . . . . . . . . . 16 12.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . - 15 -. . . . . . . . . . . . . . . . . . . . 16 12.3 Registration Statement . . . . . . . . . . . . . . . . . . . . - 15 - 12.4 Other Filings and Appeals . . . . . . . . . . . . . . . . . . . - 16 - 12.5. . 17 12.4 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . - 16 - 12.6. . . . . . . . . . . . . . . . . . . . . 17 12.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 - 12.7. . . . . . . . . . . . . . . . . . . . . 18 12.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . - 17 - 12.8 Director and Officer Liability Insurance . . . . . . . . . . . - 17 - 12.9. . . . . . . . . . 18 12.7 Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 - 12.10 Audited Financial Statements . . . . . . . . . . . . . . . . . -. . . 18 - 12.11 SEC Filings12.8 Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . - 18 - 12.12. . . . . . . . . . . . . 19 12.9 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . - 18 - 12.13. . . . . . . . . . . . . . . . . . . . . 19 12.10 Fiduciary Responsibility . . . . . . . . . . . . . . . . . . . - 19 - 12.14 Continued Employment of Bank Employees . . . . . . . . . . . . - 19 - 12.15 Publication of Financial Results . . . . . . . . . . . . . . . -. . . . . . 19 -12.11 Larry J. Kornstadt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ii 114 13. Conditions Precedent; Terminations . . . . . . . . . . . . . . . . . -. . . . . . . . . . . . . . . . . . . . 20 - 13.1 Conditions Precedent to Obligations of the Parties . . . . . . -. . . . . . . . . . . . . . . . . . . . . 20 - 13.2 Conditions Precedent to FFB's Obligations . . . . . . . . . . . - 20 -
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. . . . . . . . . . . . . . . . . . . . 21 13.3 Conditions Precedent to F&M'sHFC's Obligation . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . . 22 - 13.4 Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . 23 - 13.5 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . .- 23 -. . . . . . . . . . . . . . . . . 24 13.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . . 24 - 13.7 Closing14. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 24 - 14. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . .- 24 - 14.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . . 24 - 14.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . . . 24 - 14.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 24 -. . . . . . . . . . . . . . . . . . . 25 14.4 Binding Nature of Agreement . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . . . 25 - 14.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . . . . 25 - 14.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . . . . . . . . 25 - 14.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 - 14.8 Termination of Representations and Warranties . . . . . . . . . . . -. . . . . . . . 26 -
- iii - 115 PLAN AND AGREEMENT OF MERGER BETWEEN FIRST FINANCIAL BANCORP. AND F & M BANCORPHASTINGS FINANCIAL CORPORATION PLAN AND AGREEMENT OF MERGER (hereafter called "this Agreement"(the "Agreement") dated as of September 11, 1995July 2, 1996 by and between FIRST FINANCIAL BANCORP., an Ohio corporation and registered as a bank holding company under the Bank Holding Company Act of 1956 and a savings and loan holding company under the Savings and Loan Holding Company Act ("FFB"), and F & M BANCORP, an IndianaHASTINGS FINANCIAL CORPORATION, a Michigan corporation and registered as a bank holding company under the Bank Holding Company Act of 1956 ("F&M"HFC"), pursuant to which FFB and F&MHFC hereby agree as set forth more fully herein. 1. RECITALS --------RECITALS. 1.1 FFB is a corporation duly organized and existing under the laws of the State of Ohio, having been incorporated on August 8, 1982. F&MHFC is a corporation duly organized and existing under the laws of the State of Indiana,Michigan, having been incorporated on September 10, 1984.October 4, 1988. 1.2 The Boards of Directors of FFB and F&MHFC deem it advisable for the general welfare and advantage of FFB and F&MHFC and their respective shareholders that FFB and F&MHFC merge into a single corporation pursuant to this Agreement and pursuant to the applicable provisions of the laws of the States of Ohio and IndianaMichigan and the United States of America, subject to the approval of various federal and state regulatory authorities. 1.3 As of December 31, 1994,May 1, 1996, the authorized capital stock of FFB consisted of 25,000,000 shares of common stock, par value $8.00 per share, (the "FFB Shares"), of which 12,204,57513,388,384 shares were outstanding. 1.4 As of the date hereof, F&M isthe authorized to issue 6,000capital stock of HFC consisted of 400,000 shares of common shares, withoutstock, $1.00 par value, (the "F&M Shares"), of which 5,63379,463 shares are outstanding.were outstanding and 1,000 shares were reserved for issuance pursuant to outstanding options. 1.5 In consideration of the foregoing premises and of the mutual agreements herein contained, the parties hereby agree, in accordance with the applicable statutory provisions of the laws of the States of Ohio and Indiana,Michigan, the United States of America, and any regulatory approvals, that FFB and F&MHFC will be merged pursuant to the terms and conditions of the merger hereby agreed upon (hereafter called the(the "Merger") into a single corporation, which will be FFB, one of the constituent corporations and which will continue its corporate existence and be the corporation surviving the merger (said corporation hereafter being sometimes called the "Surviving 116 Corporation"), and the parties covenant to observe, keep, perform and carry into effect the Merger and this Agreement as hereafter set forth. 116 2. THE MERGER; EFFECTIVE TIME OF THE MERGER. Upon satisfaction (or waiver)At the effective time of the conditions specifiedMerger, the separate existence of HFC will be merged into the Surviving Corporation and National Bank of Hastings (the "Bank"), a wholly owned subsidiary of HFC, will continue as a wholly owned subsidiary of the Surviving Corporation. Consummation of this Agreement will be effected on the later date on which Articles of Merger in Section 13 below, articles of merger insubstantially the form and substance reasonably satisfactory to the parties shall be executed andannexed hereto as Exhibit A are filed in the offices of the Secretary of State of the States of Ohio and Indiana,Michigan, respectively, in the manner provided by law. The dateafter satisfaction of the laterrespective requirements of the federal regulatory agencies and of the applicable laws of the States of Ohio and Michigan prerequisite to such filings. The parties to this Agreement agree that they will work diligently to consummate this Agreement on January 1, 1997. In the event that the parties are unable to consummate this Agreement on January 1, 1997, the parties agree that if all conditions precedent to the consummation of this Agreement as set forth in Section 13 hereof have been satisfied on or before the fifteenth day of any given month, the parties will consummate this Agreement as of the end of the same month; provided, however, that if the conditions precedent to the consummation of this Agreement are satisfied on the sixteenth day of any month through the last day of such filings shall bemonth, the effective timeparties agree that they will consummate this Agreement as of the Merger (the "Effective Time"). Promptly after the Effective Time, Farmers & Merchants Bank of Rochester, Indiana (the "Bank"), a wholly owned subsidiary of F&M, shall be merged into Indiana Lawrence Bank ("ILB"), a wholly owned subsidiaryend of the Surviving Corporation (the "Bank Merger"). The Bank Merger will be effected pursuant tomonth immediately following such month, or on such other date as the terms of an agreement of merger in form and substance reasonably satisfactory to the parties.parties mutually agree. 3. GOVERNING LAW; ARTICLES OF INCORPORATION. The laws which are to govern the Surviving Corporation are the laws of the State of Ohio. The Articles of Incorporation of FFB, at the Effective Time,effective time of the Merger, will be the Articles of Incorporation of the Surviving Corporation until the same will be further amended or altered in accordance with the provisions thereof. 4. REGULATIONS.BYLAWS. The Regulations of FFB at the Effective Timeeffective time of the Merger will be the Regulations of the Surviving Corporation until the same will be altered or amended in accordance with the provisions thereof. 5. DIRECTORS AND OFFICERS. The directors of FFB at the Effective Timeeffective time of the Merger will be the directors of the Surviving Corporation until their respective successors are duly elected and qualified. Subject to the authority of the Board of Directors as provided by law and the Regulations of the Surviving Corporation, the officers of FFB at the Effective Timeeffective time of the Merger will be the officers of the Surviving Corporation. The directors of Bank at the effective time of the Merger will be the directors of Bank until their respective successors are duly elected and qualified. Subject to the authority of the board of directors of Bank as provided by law and the Bylaws of Bank, the officers of Bank at the effective time of the Merger will continue to serve as officers of Bank after the effective time of the Merger. 2 117 6. CONVERSION OF SHARES IN THE MERGER. The mode of carrying into effect the Merger provided in this Agreement and the manner and basis of converting the shares of the constituent corporation into shares of the Surviving Corporation are as follows: 6.1 FFB'S COMMON STOCK. None of the shares of common stock, par value $8.00 per share, of FFB issued at the Effective Timeeffective time of the Merger will be converted as a result of the Merger, but all such shares (including shares held in the treasury) will remain issued shares of common stock of FFB. 6.2 F&M SHARES.HFC'S COMMON STOCK. At the Effective Time,effective time of the F&M SharesMerger, each share of HFC common stock outstanding immediately prior to the Effective Timeeffective time of the Merger (except for dissenters' shares and as otherwise provided in Section 6.5) will by virtue of the Merger be converted into shares of FFB common stock as determined pursuant to Section 6.3 below, and the F&M Shareseach share of HFC common stock held in treasury immediately prior to the Effective Timeeffective time of the Merger will be cancelled. - 2 - 117 6.3 CONSIDERATION: EXCHANGE RATIO. ----------------------------- 6.3.1 The number of FFB SharesPrior to which the holders of F&M Shares shall be entitled as a resulteffective time of the Merger, the outstanding stock options for HFC common stock will be exercised for 5,000 shares of HFC common stock, and such common stock will be entitled to the same conversion rights as set forth in this Section 6. 6.3 CONSIDERATION; EXCHANGE RATIO. 6.3.1 The consideration to be paid to HFC's stockholders pursuant to this Agreement (the "Deliverable Shares""Merger Price") shallis fixed at $10,000,000 payable in FFB common stock if the effective time of the Merger is on or before January 1, 1997; provided, however, that if the effective time of the Merger is after January 1, 1997, the Merger Price will be fixed at $10,000,000 plus a sum equal to the Bank's earnings after January 1, 1997 excluding transaction-related costs, which sum will be payable in FFB common stock. Notwithstanding any of the foregoing to the contrary, dissenting shareholders of HFC who perfect their rights under the laws of the State of Michigan will receive cash in such amount per share of HFC which they own as determined by dividing $12,500,000in accordance with Michigan Business Corporations Act Section 450.1762. At the effective time of the Merger, each of the then issued and outstanding shares of HFC will be cancelled and extinguished and, in consideration and in exchange therefor, the holders thereof will be entitled, upon compliance with Section 6.4, to receive from FFB a number of common shares of FFB equal to the Merger Price divided by the mathematical average of the average of the closing daily bid and asked prices for FFB Sharesstock on the National Association of SecuritiesSecurity Dealers Automated Quotations System - National Market SystemQuotation ("NASDAQ") national market system for each of the twenty (20) consecutive trading days ending on the secondat 4:00 p.m. (New York time) three trading daydays prior to the Effective Timeeffective time of the Merger (the "Average Price""Exchange Ratio"); provided, however, that in, which resultant sum is multiplied by a fraction, the event that there occurs one or morenumerator of which is the number of HFC shares owned by such individual trading days on which two hundred (200) or fewer FFB Shares are traded as reported by NASDAQ (collectively, "Low-Trade Days"), the Low-Trade Days will be ignoredholder and the closing price for FFB Sharesdenominator of which is the aggregate number of shares of HFC stock issued and outstanding on the trading day or days immediately preceding the first of said twenty consecutive trading days (excluding Low-Trade Days), to the extent necessary, shall be taken into account in order that the calculation of the Average Price be based on twenty (20) actual trading days on which more than two hundred (200) FFB Shares are traded;such date; provided, further, however, that in the event of the subdivision or split of the outstanding shares of FFB, Shares, the payment of a dividend in FFB Sharesstock or a capital reorganization, reclassification or recapitalization affecting FFB stock, the closing price for FFB Shares during some but not all of said trading days, the number of Deliverable SharesExchange Ratio will be adjusted proportionately so that the holdersshareholders of outstanding F&M Shares shallHFC 3 118 will receive thesuch number of shares of FFB Sharescommon stock that represents the same percentage of the valueoutstanding shares of outstanding FFB Sharescommon stock at the Effective Timeeffective time of the merger as would have been represented by the number of shares such shareholders would have received if the eventrecapitalization had not occurred. Each6.3.2 After determining the Exchange Ratio, each holder of F&M Shares shall be entitled to a portionoutstanding common stock of HFC after the effective time of the Deliverable Shares that is equal to the number of Deliverable Shares multiplied by a fraction, the numerator of which is the number of F&M Shares held by that shareholder immediately prior to the Effective Time and the denominator of which is the number of F&M Shares outstanding immediately prior to the Effective Time. 6.3.2 Each holder of F&M Shares outstanding immediately prior to the Effective Time,Merger, upon surrender to FFB, of one or more stock certificates representing former shares of F&M, will be entitled to receive one or more stock certificates of FFB into which the F&M Sharescommon stock of HFC so surrendered will have been converted.converted as aforesaid. No dividends that may have been declared by FFB after the Effective Timeeffective time of the Merger and prior to the surrender of F&MHFC shares will be paid until such shares have been presented for exchange to FFB. FFB shall deliverwill make delivery of certificates to F&MHFC shareholders within ten business days of receipt by the Exchange Agent (as defined in Section 6.4 below) of F&MHFC certificates. 6.4 SURRENDER OF F&MHFC CERTIFICATES. PriorAs soon as practicable after the Merger becomes effective, the stock certificates representing common stock of HFC issued and outstanding at the time the Merger becomes effective will be surrendered for exchange to FFB. As promptly as practicable after the Effective Time, FFB andeffective time of the Merger, First National Bank of Southwestern Ohio (the "Exchange Agent") shall enter into an Exchange Agent Agreement with respect to the Deliverable Shares, which Agreement shall be subject to F&M's approval which shall not be unreasonably withheld. The Exchange Agent Agreement shall require FFB to deliver the Deliverable Shares to the Exchange Agent at the Effective Time. As promptly as practicable after the Effective Time, the Exchange Agent shallwill prepare and mail to each holder of record of an outstanding certificate or certificates prior thereto representing shares of F&MHFC a letter of transmittal containing instructions for the surrender of the certificate or certificates. - 3 - 118certificates of HFC held by such holder. Upon surrender of the F&M certificate or certificates that prior thereto represented shares of HFC in accordance with instructions set forth in the letter of transmittal, such holder shallwill be entitled to receive in exchange therefor, certificates representing the number of whole shares of FFB into which the shares represented by the certificate or certificates so surrendered shallwill have been converted, without interest. As part of its services, the Exchange Agent shall make itself available for at least three business days during regular banking hours at the main office of the Bank to accept and provide receipts for surrendered certificates. Approval of the Exchange Agent Agreement by F&M and approvalAdoption of this Agreementagreement by the shareholdersstockholders of F&M shallHFC will constitute ratification of the appointment of First National Bank of Southwestern Ohio as the Exchange Agent for this purpose. The Exchange Agent shallwill not be obligated to deliver certificates for FFB stock to a former shareholderstockholder of F&MHFC until such former shareholderstockholder surrenders his or her certificate or certificates representing shares of F&MHFC or, in default thereof, an appropriate affidavit of loss and indemnity agreement or bond as may be required by FFB. Until so surrendered for exchange, each such stock certificate formerly representing F&M Sharescommon stock of HFC will be deemed for all corporate purposes (except for the payment of dividends, which will be subject to the exchange of stock certificates as above provided) to evidence the ownership of the number of shares of common stock of the Surviving Corporation that the holder thereof would be entitled to receive upon its surrender to FFB. 6.5 FRACTIONAL INTERESTS. No fractional shares of common stock of FFB or certificate or scrip representing the same will be issued. In lieu thereof, each holder of F&M SharesHFC's common stock having a fractional interest arising upon thesuch conversion of F&M Shares in the Merger will be paid in cash by FFB for the additional fractional interest. Such payment shallwill be equal to the fractional interest times the Average Price.Exchange Ratio. This amount shallwill not be paid to any holder of F&M SharesHFC's common stock who shallwill not have surrendered his certificates for exchange pursuant to Section 6.4 hereof, and FFB shallwill retain such amount until such time as such certificates have been surrendered. 6.6 BANK CERTIFICATES. Share certificates that name the Bank as issuer but represent F&M Shares will be deemed share certificates representing F&M Shares in connection with the Merger and for the purposes of rights and obligations under this Agreement.4 119 7. EFFECT OF THE MERGER. At the Effective Time,effective time of the Merger, the Surviving Corporation will succeed to, without other transfer, and will possess and enjoy, all the rights, privileges, immunities, powers and franchises both of a public and a private nature, and be subject to all the restrictions, disabilities and duties of each of FFB and F&M,HFC, and all the rights, privileges, immunities, powers and franchises of each of FFB and F&MHFC and all property, real, personal and mixed, and all debts due to either of said constituent corporations on whatever account, for stock subscriptions as well as for all other things in action or belonging to each of said corporations, will be vested in the Surviving Corporation; and all property, rights, privileges, immunities, powers and franchises, and all and every other interest will be thereafter as effectually the property of the Surviving Corporation as they were of FFB and F&M,HFC, respectively, and the title to any real estate vested by deed or otherwise in either of FFB and F&MHFC will not revert or be in any way impaired by reason of the Merger; provided,provided; however, that all rights of creditors and all liens upon any property of either of FFB or F&MHFC will be preserved unimpaired, limited in lien to the property affected by such liens at the Effective Time,effective time of the Merger, and all debts, liabilities and - 4 - 119 duties of said constituent corporations, respectively, will thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by the Surviving Corporation. 8. APPROVAL OF THE SHAREHOLDERS; FILING OF ARTICLES OF MERGER. This Agreement will be submitted to the shareholders of F&MHFC for adoption and approval.approval on or before November 30, 1996 [?], or such later date as the Boards of Directors of FFB and HFC mutually approve. After such adoption and approval, and subject to the conditions contained in this Agreement, articlesArticles of mergerMerger in substantially the form annexed hereto as described in Section 2Exhibit A will be signed, verified and delivered to the Secretary of State of the States of Ohio and IndianaMichigan for filing as provided by the respective statutes of such states. 9. F&M'SHFC'S REPRESENTATIONS AND WARRANTIES. Except as provided in the schedules contained in the disclosure statement attached hereto ("Disclosure Statement"), F&MHFC represents and warrants to FFB as of the date hereof and as of the Effective Timeeffective time of the Merger as follows: 9.1 ORGANIZATION. F&MHFC is a corporation duly organized and validly existing under the laws of the State of IndianaMichigan and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended ("Bank Holding Company Act"). F&Mamended. HFC has the corporate power to carry on its businesses as they are now being conducted and is qualified to do business in each jurisdiction in which the character and location of the assets owned by it, or the nature of the business transacted by it, requires qualification, except where the absencequalification. HFC, by order of such qualification would not have a material adverse effect on its businesses or properties. The Board of Directors, of F&M has authorized and directed the persons executingauthority to enter into this Agreement on behalf of F&M to do so, and this Agreement, when executed and delivered, will be legally binding upon F&M.binding. 5 120 9.2 CAPITALIZATION. F&M isHFC's capitalization consists of 400,000 authorized to issue 6,000shares of common shares, withoutstock ($1.00 par value,value), of which, as of the date hereof, 5,63379,463 shares arewere issued and outstanding.outstanding and 1,000 shares were reserved for issuance pursuant to outstanding options. Each issued share of F&M was validly issued, fully paid and non-assessable, and each outstanding share of F&M is entitled to one vote. F&M has not issued or granted nor is it a party to anyExcept for outstanding options exercisable for 1,000 shares of HFC common stock, there are no outstanding subscriptions, options, warrants, calls or rights of any kind relating to or providing for the issuance, sale, delivery or transfer of any class of securities of F&M.HFC. 9.3 INFORMATION FURNISHED BY F&M. In connection with FFB'sLIST OF INFORMATION. For the due diligence examination prior to the date hereof, F&M hasin May, 1996, HFC delivered to FFB certain information concerning F&MHFC dated as of the date furnished or such other date as disclosed to FFB.furnished. Such information and the copies of documents furnished to FFB are accurate in all material respects as of the date furnished or such other date.furnished. 9.4 SUBSIDIARIES. F&MHFC has one wholly owned subsidiary, the Bank. F&MHFC has no other subsidiaries. The Bank is a statenational bank duly organized and validly existing under the laws of the State of Indiana. TheUnited States. Bank has the corporate power to carry on its businesses as they are now being conducted and is qualified to do business in each jurisdiction in which the character and location of the assets owned by it, or the nature of the business transacted by it, requires qualification, except where the absence of such qualification would not have a material adverse - 5 - 120 effect on the businesses or properties of F&M. The Bank is authorized to issue 6,000 shares, par value $100 per share, of which, as of the date hereof, 6,000 shares are issued and outstanding.qualification. All of the Bank'soutstanding shares of the stock of Bank are validly issued, fully paid and non-assessable, except as provided under federal banking law, and, except as set forth in the Disclosure Schedule, all such shares are owned by F&MHFC free and clear of all liens, claims, charges or encumbrances. The Bank has not issued or granted nor is it a party to anyThere are no outstanding subscriptions, options, warrants, calls or rights of any kind relating to or providing for the issuance, sale, delivery or transfer of any class of securities of the Bank. 9.5 FINANCIAL STATEMENTS. The Disclosure Statement will containHFC has delivered to FFB copies of F&M'sits consolidated balance sheets as of April 30,December 31, 1995, and 1994, and F&M's1993 and the related consolidated statements of income,earnings, changes in shareholders' equity, and cash flows for each of the three years in the period ended April 30,December 31, 1995, 1994 and 1993. Except for the 1993 financial statements and related notes (which are unaudited), in each case all such documents, including the notes thereto, will beall certified by Crowe, Chizek and Company LLP, independent public accountants.accounts, or one of said accountants' predecessor firms. The balance sheetsfinancial statements of HFC as of December 31, 1993 and for the year then ended were audited by other auditors whose report expressed an unqualified opinion on those statements. All of such financial statements referred to in this Section are hereinafter referred topresent fairly the financial positions as of and at the "F&M Financial Statements." F&M will deliverdates shown and the F&M Financial Statements to FFB as soon as practicable after F&M receives them from said accountants. The F&M Financial Statements will beresults of operations for the periods covered thereby. They have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods indicated, except as otherwise indicated in the notes thereto. Each of the balance sheets presents a true and complete statement in all material respects as of its date of HFC's financial condition. All liabilities of F&MHFC (including any contingent liabilities), as of the date of each balance sheet, will bewere properly accrued in such balance sheet or disclosed in the related footnotes, in accordance with generally accepted accounting principles, except as may be noted therein.principles. 6 121 9.6 GOOD AND MARKETABLE TITLE. F&MHFC and the Bank have and at the Effective Timeeffective time of the Merger will have good and marketable title in fee simple to all lands and buildings shown as assets of F&M or the Bank in their records and books of account, except for properties held in trust or other fiduciary capacity, free and clear of all liens, encumbrances and charges except as reflected in the F&M Financial Statementsaforesaid financial statements and except for current taxes and assessments not delinquent or being contested in good faith and liens, encumbrances and charges shown in their records and books of account which are not substantial in character or amount and do not materially detract from the value or interfere with the use of the properties subject thereto or affected thereby. F&MHFC and the Bank have and at the Effective Timeeffective time of the Merger will have valid leases under which they are entitled to occupy and use in their business all real property of which they are lessees, and F&MHFC and the Bank have no knowledge of any material default under any such lease. As of the date hereof, neither F&MHFC nor the Bank has title to any real property or buildings as a result of foreclosure or by otherwise realizing on collateral held by either of them. Neither F&MHFC nor the Bank shallwill take action to foreclose or otherwise realize on any real property collateral held by either of them prior to the Effective Timeeffective time of the Merger without the prior consent of FFB, which consent shallwill not be unreasonably withheld. F&MHFC and the Bank have and at the Effective Timeeffective time of the Merger will have good and marketable title to the machinery, equipment, merchandise, materials, supplies and other property of every kind, tangible or intangible, contained in their offices and other facilities or shown as assets in their records and books of account, except for properties held in trust or other fiduciary capacity, free - 6 - 121 and clear of all liens, encumbrances and charges except as reflected in the F&M Financial Statementsaforesaid financial statements and except for liens, encumbrances and charges, if any, which do not materially detract from the value of or interfere with the use of the properties subject thereto or affected thereby. F&MHFC and the Bank have and will have immediately prior to the Effective Timeeffective time of the Merger valid leases under which they are entitled to use in their business all personal property of which they are lessees, and neither F&MHFC nor the Bank has any knowledge of any material default under any such leases. 9.7 TAXES. AllHFC and Bank have paid all taxes imposed by the United States or by any state, municipality, subdivision or instrumentality of the United States or by any other taxing authority, which are due or payable by either F&MHFC or Bank, that the failure to pay would have a material and adverse effect on HFC and/or Bank, ("Taxes"), and all claims asserted against each of them for the payment of Taxes have been paid in full or are adequately accrued in the records and books of accounts of each of F&MHFC and the Bank and will be so paid or provided for at the Effective Time.effective time of the Merger. All income tax returns for each of F&MHFC and the Bank for tax years through and including 1994 have been filed with the taxing authorities having jurisdiction thereof through the years specified in the Disclosure Schedule, and no extension of time for the assessment of deficiencies for any such years is in effect. Neither F&MHFC nor the Bank has knowledge of any unassessed Taxtax deficiency proposed or threatened against it. 7 122 9.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. From April 30, 1994Except as disclosed in the disclosure schedule attached hereto (the "Disclosure Schedule), from December 31, 1995 to the date hereof, there has not been: 9.8.1 any material change in or event affecting the corporate status, businesses,business, operations or financial condition (financial or otherwise) of either of F&M or theHFC and Bank, (whether or not covered by insurance), other than changes in the ordinary course of business, which are not, in the aggregate, materially adverse to F&M; orbusiness; 9.8.2 any declaration, setting aside or payment of any dividend or other distribution, with respect to F&M Shares, except theHFC's common stock, except: (a) a cash dividend of $30$1.25 per share to be paid on July 15, 1996; and (b) a cash dividend of $1.25 per share to be paid on December 31, 1996; and 9.8.3 any other event or about February 1, 1995.condition of any character which has materially and adversely affected the corporate status, business, operations or financial condition of HFC and Bank taken as a whole. 9.9 CONTRACTS AND AGREEMENTS. Neither F&MExcept for agreements described in and appended to the Disclosure Schedule, neither HFC nor the Bank is a party to: (a) any sales agency agreement not subject to termination without liability on notice of 60 days or less; (b) any contract for the purchase or sale of any materials, products or supplies which contains any escalator, renegotiation or redetermination clause or which commits it for a fixed term; (c) any contract of employment with any officer or employee not terminable at will without liability; (d) any pension, retirement or profit sharing plan or agreement not cancelable within 60 days without liability;lability; (e) any management or consultation agreement not terminable at will without liability; (f) any lease, license, royalty, union agreement or loan agreement except those entered into in the ordinary course of business;business and which are terminable without liability on notice of 60 days or less; (g) any contract, accepted order or commitment for the purchase or sale of materials, products or supplies having a total contract price in excess of $20,000; or (h) any other agreement which materially affects the business, properties, assets or condition (financial or otherwise) of F&M,HFC, or which was entered into other than in the ordinary and usual course of business. The Disclosure Statement containsSchedule will contain the following with respect to each - 7 - 122 pension or profit sharing plan of F&MHFC and the Bank: a copy of the plan and any relevant trust agreements, a copycopies of the 1994 Form 5500-C/Rforms filed with the Internal Revenue Service, the latest report of the trustee or insurance company of the value of the assets or the cash surrender values as of the latest anniversary of the insurance polices held under the plan, and the latest actuarial evaluation or statement of individual accounts. 8 123 9.10 INSURANCE. HFC is adequately insured with respect to risks normally insured against by companies similarly situated. The Disclosure Statement containsSchedule will contain a list, and isbe accompanied by copies, of all existing insurance policies of F&MHFC and the Bank, including but not limited to group insurance and pension plans. All such policies are in full force and effect. The Disclosure StatementSchedule will also containscontain a list of all claims for insured losses filed by F&MHFC and the Bank during the three-year period immediately preceding the date of this Agreement, including but not limited to worker's compensation, automobile and general liability. 9.11 LITIGATION AND PROCEEDINGS. ThereExcept as set forth in the Disclosure Schedule, there is no suit, action or legal or administrative proceeding pending or, to the knowledge of F&M,HFC, threatened, against it or the Bank, which, if adversely determined, might materially and adversely affect the financial condition, on a consolidated basis, of F&MHFC and the Bank or the conduct of their businesses, nor is there any decree, injunction or order of any court, governmental department or agency outstanding against F&MHFC or the Bank having any such effect. 9.12 MATERIAL CONTRACTS; NO CONFLICT WITH OTHER INSTRUMENTS. Neither F&MHFC nor the Bank is in default under the terms of any outstanding contract, agreement, lease or other commitment which default would have a material and adverse effect, on a consolidated basis, on F&MHFC and the Bank, and at the Effective Time,effective time of the Merger, the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of or constitute a default under any indenture, mortgage, deed of trust or other agreement or instrument to which F&MHFC or the Bank is a party, which default or breach would have a material and adverse effect, on a consolidated basis, on F&MHFC and the Bank. 9.13 GOVERNMENTAL AUTHORIZATIONS AND FILINGS. Each of F&MHFC and the Bank has all valid and sufficient licenses, franchises, permits and other governmental authorizations for all businesses presently carried on by F&MHFC and the Bank, respectively. F&Mrespectively, and has filed with the Federal Reserve Board all reports necessary to the conduct of its business as a bank holding company and is current in all respect as to such filings. F&M has providedHFC will provide in the Disclosure StatementSchedule its Annual Reports on FormForms FRY-6 for 1990, 1991 and 1994 and on Form FRY-9 for 1990, 1991, 1992, 1993, 1994 and 1994,1995, proxy materials for its Annual Meetings in such years and will provide proxy materials for its Annual Meeting in 1995. The1996. Bank has providedwill provide in the Disclosure StatementSchedule its Year-End Call Reports for 1991, 1992, 1993, 1994 and 1994,1995, when available, as filed with the Federal Deposit Insurance Corporation.Office of the Comptroller of the Currency. 9.14 CONSENTS AND APPROVALS. Except for consents and approvals of federal and state regulatory authorities, theThe only consent and approval required to be obtained by or on behalf of F&MHFC or the Bank on or prior to the Effective Timeeffective date of the Merger is the approval of the holders of seventy-five percentHFC shareholders in the form required by the Michigan Business Corporations Act of the outstanding sharesState of F&MMichigan. Other consents and approvals required to be obtained prior to the effective date of the Merger are set forth in the manner provided by law. - 8 -Section 10.12 below. 9 123124 9.15 BROKERS. Neither F&M, theHFC, Bank nor any of their officers, directors or employees have employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finders' fees in connection with this Agreement or with the transactions contemplated hereby.hereby, except that HFC has retained Austin Associates, Inc. ("Austin") to perform various brokerage services in connection with this transaction. HFC is liable for and will pay all amounts due Austin. 9.16 ENVIRONMENTAL MATTERS. For purposes hereof, "environmental laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment and natural resources. (a) F&MExcept as set forth in the Disclosure Schedule, to the extent required, HFC and the Bank have filed all notices, permit applications and other required governmental submissions and have obtained all permits, licenses and other authorizations which are required and which are material in connection with the conduct of their respective businesses under all applicable environmental laws, including approvals relating to emissions, discharges, releases or threatened releases, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, new or used petroleum products, industrial, toxic or hazardous substances or solid wastes into the environment (including, without limitation, ambient air, surface water, groundwater, land or sewers). (b) EachExcept as set forth in the Disclosure Schedule, to the extent required, each of F&MHFC and the Bank is in compliance, in all material respects, in the conduct of its business with all terms and conditions of the necessary permits, licenses and authorizations, and to the best of their knowledge is also in compliance in all material respects with all other applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in thesuch environmental laws or contained in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved under thesuch environmental laws. (c) Neither F&MExcept as set forth in the Disclosure Schedule, neither HFC nor the Bank is aware of, nor has either of HFC or Bank received notice of, or has knowledge of, any past or present events, conditions,condition, circumstances, activities, practices, incidents, actions or plans which may materially interfere with or prevent compliance or continued compliance in the conduct of its business with thesuch environmental laws or any regulations, codes, plans, orders, decrees, judgments, injunctions, noticescode, plan, order, decree, judgment, injunction, notice or demand lettersletter issued, entered, promulgated or approved under thesuch environmental laws, or which may give rise to any common law or legal liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study or proceeding,investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment (including, without limitation, ambient air, surface water, groundwater, land or sewers), of any pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or waste or new or used petroleum products. 10 125 (d) Neither F&MExcept as set forth in the Disclosure Schedule, neither HFC nor the Bank is aware of, nor has either of HFC or Bank received notice of, or has knowledge of, any material civil, criminal or administrative action, suit, demand, claim, hearing, notice or demand letter, notice of violation, investigation, or proceeding pending or threatened against either F&MHFC or the Bank relating in any way to the environmental laws or any regulation, code, plan, order, - 9 - 124 decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved under thesuch environmental laws. (e) ToExcept as set forth in the Disclosure Schedule, to the best knowledge of each of F&MHFC and the Bank, there is no asbestos-containingasbestos containing material located on the premises on which F&M and the Bank conduct their respective businesses the presence of whichthat violates any environmental law.law or is in need of removal or repair. 9.17 VALIDITY OF CONTEMPLATED TRANSACTIONS. TheExcept as set forth in the Disclosure Schedule, the execution, delivery and performance of this Agreement will not: (i) violate, or conflict with, or require any consent under, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in the creation of any material lien upon any of the assets of either of F&MHFC or the Bank, under any of the terms, conditions or provisions of the Articles of Incorporation or Bylaws of F&MHFC and the Articles of Association or theBylaws of Bank, or of any material note, bond, mortgage, indenture, deed of trust, material license, lease, agreement or other instrument or obligation to which either of F&MHFC or the Bank is a party or by which either of F&MHFC or the Bank or any of their assets may be bound or affected or (ii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to F&M, theHFC, Bank or any of their assets. 10. FFB'S REPRESENTATIONS AND WARRANTIES. FFB represents and warrants to F&MHFC as of the date hereof and as of the Effective Timeeffective time of the Merger as follows: 10.1 ORGANIZATION. FFB is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and a savings and loan holding company under the Savings and Loan Holding Company Act. FFB has the corporate power to carry on its businesses as they are now being conducted and is qualified to do business in each jurisdiction in which the character and location of the assets owned by it, or the nature of the business transacted by it, requires qualification. FFB by order of its Board of Directors, has authority to enter into this Agreement and this Agreement is legally binding. 11 126 10.2 SUBSIDIARIES. Each indirect and direct subsidiary of FFB which, as of the Effective Timeeffective time of the Merger would be deemed to be a "significant subsidiary," as such term is defined in Rule 405 of the rules and regulations promulgated in the Securities Act of 1933, as amended (the "1933 Act"), is either a national bank or federal savings association duly organized, validly existing, and in good standing under a charter granted by the Office of the Comptroller of the Currency or the Office of Thrift Supervision, or is a corporation or state bank duly organized, validly existing and in good standing under the laws of the state of its incorporation, and in either case, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to so qualify would have a material and adverse effect on the consolidated business, financial condition or results of operations of FFB. - 10 - 125 10.3 CAPITALIZATION. FFB's capitalization consists of 25,000,000 authorized shares of common stock (par value $8.00 per share), of which, as of December 31, 1994, 12,204,575May 1, 1996, 13,388,384 shares were issued and outstanding. Each issued share is validly issued, fully paid and nonassessable,non-assessable, and each outstanding share is entitled to one vote. 10.4 SHARES TO BE ISSUED. All shares of common stock of FFB into which F&M Sharesthe common stock of HFC will be converted will be, immediately after the Effective Timeeffective time of the Merger and when issued upon such conversion, duly and validly authorized and issued, fully paid and nonassessable,non-assessable, and no stockholder of FFB will have any preemptivepre-emptive right of subscription or purchase in respect thereof. FFB shallwill take such steps as may be necessary for such shares to be listed on NASDAQ immediately after the Effective Time.effective time of the Merger. 10.5 FINANCIAL STATEMENTS. FFB will have delivered to F&MHFC copies of its consolidated balance sheets as of December 31, 1995, 1994 1993 and 1992,1993, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for each of the three years thenin the period ended December 31, 1995, in each case including the notes thereto, all certified by Ernst & Young LLP, independent public accountants, or one of said accountant'saccountants' predecessor firms (the "FFB Financial Statements").firms. All of the FFB Financial Statementssuch financial statements have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods indicated, except as otherwise indicated in the notes thereto. Each of such balance sheets presents a true and complete statement in all material respects as of its date of FFB's financial condition. All liabilities of FFB (including any contingent liabilities), as of the date of each balance sheet, were properly accrued in such balance sheet or disclosed in the related footnotes, in accordance with generally accepted accounting principles. 12 127 10.6 GOOD AND MARKETABLE TITLE. FFB has and at the Effective Timeeffective time of the Merger will have good and marketable title in fee simple to all lands and buildings shown as assets min its records and books of account, except for properties held in trust or other fiduciary capacity, free and clear of all liens, encumbrances and charges except as reflected in the FFB Financial Statementsaforesaid financial statements and except for current taxes and assessments not delinquent or being contested in good faith and liens, encumbrances and charges shown in itstheir records and books of account which are not substantial in character or amount and do not materially detract from the value or interfere with the use of the properties subject thereto or affected thereby. FFB has and at the Effective Timeeffective time of the Merger will have valid leases under which it is entitled to occupy and use in its business all real property of which it is lessee, and FFB has no knowledge of any material default under any such lease. FFB has and at the Effective Timeeffective time of the Merger will have good and marketable title to the machinery, equipment, merchandise, materials, supplies and other property of every kind, tangible or intangible, contained in its offices and other facilities or shown as assets in its records and books of account, except for properties held in trust or other fiduciary capacity, free and clear of all liens, encumbrances and charges except as reflected in the FFB Financial Statementsaforesaid financial statements and except for liens, encumbrances and charges, if any, which do not materially detract from the value of or interfere with the use of the properties subject thereto or affected thereby. FFB has and will have immediately prior to the Effective Timeeffective time of the Merger valid leases under which it is entitled to use in its - 11 - 126 business all personal property of which it is lessee, and FFB has no knowledge of any material default under any such lease. 10.7 TAXES. All Taxestaxes imposed by the United States or by any state, municipality, subdivision or instrumentality of the United States or by any other taxing authority, which are due or payable by FFB, and all claims asserted against it have been paid in full or are adequately accrued in the records and books of accounts of FFB and will be so paid or provided for at the Effective Time.effective time of the Merger. All income tax returns for FFB have been filed with the taxing authorities having jurisdiction thereof for allthrough the years through FFB's 1993 tax year,specified in the Disclosure Schedule, and no extension of time for the assessment of deficiencies for any such years is in effect. FFB has no knowledge of any unassessed tax deficiency proposed or threatened against it. 10.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. From December 31, 19941995 to the date hereof, there has not been: 10.8.1 any change in or event affecting the corporate status, businesses,business, operations or financial condition (financial or otherwise) of FFB and its consolidated Subsidiaries, other than changes in the ordinary course of business,business; and those changes described in any FFB filings with the Securities and Exchange Commission, and those changes that may result from FFB's acquisitionnone of Bright Financial Services Inc., of Flora, Indiana, and its subsidiary bank, which are, not, in the aggregate, materially adverse to FFB; 13 128 10.8.2 with respect to FFB's common stock, any declaration, setting aside or payment of any dividend or other distribution, other than quarterly dividends of $0.26 per share paid on January 1, 1995, April 1, 1995 and July 1, 1995; and 10.8.3 any other event or condition of any character which has materially and adversely affected the corporate status, business, operations or financial condition of FFB and its consolidated Subsidiaries taken as a whole. 10.9 INFORMATION FURNISHED BY FFB. Neither this Agreement nor any written report, statement, list, certificate or information furnished or to be furnished by FFB to F&M in connection with this Agreement or any of the transactions contemplated hereby (including, without limitation, any information which has been or will be supplied by FFB with respect to its business, operations, financial condition, directors and officers for inclusion in the proxy statement and registration statement relating to the Merger) contains or will contain (in the case of information relating to the proxy statement at the time it is mailed and to the registration statement at the time it becomes effective) any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. 10.10 LITIGATION AND PROCEEDINGS. There is no suit, action or legal or administrative proceeding pending, or to the knowledge of FFB threatened, against it or any of FFB's consolidated Subsidiaries, which, if adversely determined, might materially and adversely affect the financial condition, on a consolidated basis, of FFB and FFB's consolidated Subsidiaries or - 12 - 127 the conduct of their businesses, nor is there any decree, injunction or order of any court, governmental department or agency outstanding against FFB or any of FFB's consolidated Subsidiaries having any such effect. 10.1110.10 MATERIAL CONTRACTS; NO CONFLICT WITH OTHER INSTRUMENTS. Neither FFB nor any of its consolidated Subsidiaries is in default under the terms of any material outstanding contract, agreement, lease or other commitment which default would have a material and adverse effect, on a consolidated basis, on FFB and FFB's consolidated Subsidiaries, and at the Effective Time,effective time of the Merger, the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of or constitute a default under any material indenture, mortgage, deed of trust or other material agreement or instrument to which FFB or any of its consolidated Subsidiaries is a party, which default or breach would have a material and adverse effect, on a consolidated basis, on FFB and FFB's consolidated Subsidiaries. 10.1210.11 GOVERNMENTAL AUTHORIZATIONS AND FILINGS. FFB and each of FFB's consolidated Subsidiaries has all valid and sufficient licenses, franchises, permits and other governmental authorizations necessary to the conduct of its business as a bank holding company and has filed with the Board of Governors of the Federal Reserve System ("FRB"), the Office of Thrift Supervision and the Securities and Exchange Commission all reports necessary to the conduct of its business as a bank holding company and savings and loan holding company and is current in all respects as to such filings. 10.1310.12 CONSENTS AND APPROVALS. The consents and approvals required to be obtained by FFB on or prior to the Effective Timeeffective date of the Merger are set forth below: 10.13.110.12.1 approval and effectiveness of the Registration Statement referred to in Section 12.3 or of any post effective amendment thereto, 10.13.2thereto; 10.12.2 approval of FRB under Bank Holding Company Act; 10.12.3 approval of the FRB under the Bank Holding Company Act, 10.13.3 approvalOffice of the Department of Financial InstitutionsComptroller of the State of Indiana ("Department"),Currency; and 10.13.410.12.4 any other required consents for the completion of the Merger. 10.1414 129 10.13 BROKERS. Neither FFB nor any of its officers, directors or employees have employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finders' fees in connection with this Agreement or with the transactions contemplated hereby. 10.15thereby. 10.14 VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution, delivery and performance of this Agreement will not: (i) violate, or conflict with, or require any consent under, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in the creation of any lien upon any of - 13 - 128 the assets of FFB, or ILB, under any of the terms, conditions or provisions of the Articles of Incorporation or bylaws of FFB, or ILB, or of any note, bond, mortgage, indenture, deed of trust, material license, lease, agreement or other instrument or obligation to which FFB or ILB is a party or by which FFB or any of its assets may be bound or affected or (ii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to FFB or ILB or any of theirits assets. 11. CONDUCT OF BUSINESS PENDING THE MERGER. 11.1 NEGATIVE COVENANTS OF F&M.HFC. From and after the date of this Agreement and prior to the Effective Time,effective time of the Merger, without the prior written consent of FFB, F&M will not:neither HFC nor Bank will: 11.1.1 amend its respective Articles of Incorporation, Articles of Association, Regulations or Bylaws; 11.1.2 engage in any material activity or transaction or incur any material obligation (by contract or otherwise) except in the ordinary course of business or other than as described in this Section 11;business. 11.1.3 issue rights or options to purchase or subscribe to any shares of its sharescapital stock or subdivide or otherwise change any such shares; orshares. 11.1.4 issue or sell any shares of its shares.capital stock, except to fulfill the outstanding options issued to Larry J. Kornstadt. 11.2 DIVIDENDS. The parties agree to cooperate with each other to insure that the shareholders of HFC receive a regular quarterly dividend from either HFC or FFB during the quarter in which the effective time of the Merger occurs, and that such shareholders of HFC do not receive dividends from both HFC and FFB during such quarter. 15 130 11.3 HFC EFFORTS. From and after the date of this Agreement and prior to the Effective Time, neither FFB nor F&M will declare or pay any dividends on or make any distributions in respecteffective time of any shares of its capital stock, except that (i) FFB may declarethe Merger, HFC and pay, on or about the dates when such dividends have customarily been declared and paid by it in the past, quarterly cash dividends in the amount of $0.26 or more (plus such additional amount, which may be stock dividends, if any, consistent with FFB's practices during recent years as its Board of Directors may determine) per share during each calendar quarter on the outstanding shares of FFB's common stock; and (ii) F&M may declare and pay cash dividends in an amount not to exceed thirty percent (30%) of F&M's net earnings as determined by F&M for the year ending December 31, 1995. For the period from December 31, 1995 until the Effective Time, and assuming the financial condition of F&M justifies such action, the parties agree to cooperate with each other to ensure that the shareholders of F&M receive a quarterly cash dividend from either F&M or FFB and that during the quarter in which the Effective Time occurs such shareholders of F&M do not receive cash dividends from both F&M and FFB. 11.3 RESPECTIVE EFFORTS OF FFB AND F&M. From and after the date of this Agreement and prior to the Effective Time, each of F&M and the Bank will makeuse their respective reasonablebest efforts to preserve their respective business organizations intact; to keep available the services of their respective present officers and employees;employees and to preserve the goodwill of their respective suppliers, customers and others having business relations with whom they have business relations.it. During the same period, neither F&M nor theHFC and Bank will not put into effect any material increase in the compensation - 14 - 129 or other benefits applicable to officers or other key personnel in excess of compensation increases paid by HFC or Bank to similarly situated employees in accordance with past practices. 11.4 PURCHASE OF "TAIL COVERAGE". HFC may purchase "tail coverage" on its Directors' and Officers' insurance for a period of the Bank, except annual increases effective in 1996 that doat least two years and for a sum not exceedexceeding $10,000 in the aggregate five percent (5%) or as to any individual six percent (6%).aggregate. 12. ADDITIONAL AGREEMENTSAGREEMENTS. 12.1 ACCESS AND INFORMATION. FFB and F&MHFC hereby agree that each will give to the other and to the other's accountants, counsel and other representatives full access during normal business hours throughout the period prior to the Merger to all of its properties, books, contracts, commitments and records, and that each will furnish the other during such period with all such information concerning its affairs as such other party may reasonably request. In the event of the termination of this Agreement, each party will, upon the request of the other, destroy or deliver to the other all documents, work papers and other material obtained from the other relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, and will use its best efforts to have any information so obtained and not heretofore made public kept confidential. 12.2 CONFIDENTIALITY. From and after the date of this Agreement, the parties and their respective Subsidiaries shall,will, and they shallwill cause their respective directors, officers, employees and advisors ("Affiliates") to, treat all information received from or on behalf of another party hereto or its Affiliates concerning the business, assets, operations and financial condition of such other party or its Subsidiaries as confidential, unless and to the extent that the party receiving such information can demonstrate that such information was in the public domain, and the party receiving such information and its Subsidiaries shall,will, and shallwill cause their respective Affiliates to, not use any such confidential information for any purpose except in furtherance of the transactions contemplated by this Agreement. In the event this Agreement is terminated pursuant to Section 13.4 hereof, each party and its Subsidiaries, shallupon the request of the other, will promptly return to the other party or destroy all documents and work papers and all copies thereof, containing any such confidential information received from or on behalf of another party hereto in connection with the transactions contemplated by this Agreement. The covenants contained in this Section are of the essence and shallwill survive any termination of this Agreement and the closing of the transactions contemplated by this Agreement. 16 131 12.3 REGISTRATION STATEMENT. FFB will use its best efforts to prepare and file as soon as practicable with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 under the 1933 Act to register a sufficient number of shares of common stock which the Deliverable Sharesshareholders of HFC will receive pursuant to Section 6 at the Effective Time.effective time of the Merger. FFB will use its best efforts to cause such Registration Statement to become effective. FFB will use reasonable efforts to make all proper filings under any applicable state securities laws. The prospectus which forms a part of the Registration Statement will also constitute the Proxy Statement of F&M for solicitation of proxies in connection with the meeting of shareholders referred to in Section 13.3.7. The Registration Statement will comply in all material respects with the rules and regulations of the Securities and Exchange Commission. Each of the parties hereto will cooperate fully with each other in preparation of the Registration Statement and Proxy Statement (and any and all amendments thereto) and supply all information necessary, in the opinion of their respective counsel, in order to complete the preparation of the Registration and Proxy Statement. FFB will list the Deliverable Shares on NASDAQ. - 15 - 130 12.4 OTHER FILINGS AND APPEALS. FFB will have primary responsibility for preparation of all applications for regulatory approval of the Merger including but not limited to the preparation of: (i) an application or any amendment thereto filed or to be filed by any party with the FRB under the Bank Holding Company Act for authority to consummate the transactions contemplated by this Agreement, the Articles of Merger and the Agreement of Merger; (ii) an application or any amendment thereto filed or to be filed with the Department for authority to consummate the transactions contemplated by this Agreement, the Articles of Merger and the Agreement of Merger; and (iii) any application or statements to be made by any party to any governmental body in connection with such matters and in connection with plans and agreements of merger heretofore or hereafter entered into between the parties hereto. FFB will deliver copies of all applications to F&M prior to filing, keep F&M apprised of the status of all applications and file the application with the FRB as promptly as practicable following the date of this Agreement. Each of the parties hereto shall use its best efforts, separately and jointly with the other party, in good faith to take or cause to be taken all such steps as shall be necessary or advisable to obtain all consents and approvals of governmental authorities as are required by law or otherwise to effect the Merger. In the event of an adverse or unfavorable determination by any regulatory authority, or should the Merger be challenged or opposed by any administrative or legal proceeding, whether by the United States Department of Justice or otherwise, the determination of whether and to what extent to seek appeal or review, administrative or otherwise, or other appropriate remedies shall be made by FFB with the concurrence of F&M, which concurrence shall not be unreasonably withheld, and FFB agrees to be fully responsible for the conduct of such review or other proceeding. 12.5 EMPLOYEE BENEFIT PLANS. Notwithstanding anything to the contrary contained herein, (i) in the event that the Effective Time occurs prior to the date on which the Bank makes its required contribution to the Farmers and Merchants Bank Retirement Plan and Trust ("Retirement Plan") for the 1995 plan year, as determined in accordance with the terms of the Retirement Plan, the Surviving Corporation shall assume or cause ILB to assume such obligation and shall make or cause ILB to make such required contribution as soon as practicable after the amount of such required contribution shall be determined; and (ii) the Surviving Corporation shall assume or cause ILB to assume the obligation of the Bank to make a pro rata contribution to the Retirement Plan for the period from December 31, 1995 until the Effective Time (the "1996 Partial Plan Year"), in accordance with an amendment to the Retirement Plan to be adopted by the Bank to require a Bank contribution to the Retirement Plan for the 1996 Partial Plan Year.12.4.1 As soon as practicable after the Effective Time, buteffective date of the Merger, FFB shall make available to eligible employees of Bank nonqualified employee benefit plans comparable to the nonqualified employee benefit plans then made available to similarly situated employees of other FFB subsidiaries. Nonqualified employee benefit plans, fringe benefits and other employee practices and policies in no eventeffect at Bank immediately prior to making the required contribution or contributions, if any, described in the preceding sentence, the Surviving Corporation shall cause the terminationeffective date of the RetirementMerger shall continue in effect until modified or terminated by FFB. 12.4.2 Pension Plan in a manner which shall assure the tax-qualified status of the RetirementNational Bank of Hastings ("Bank Pension Plan") shall be merged into FFB Pension Plan upon termination. Upon termination of the Retirement Plan, provisions will be made for the distribution of each participant's account in accordance with the terms of the Retirement Plan, the Internal Revenue Code, and the Employee Retirement Income Security Act of 1974 ("ERISA"). Former employees of the Bank who are employed by ILB as of the Effective Timeeffective date of the Merger. In the case of a FFB Pension Plan participant who was a Bank Pension Plan participant immediately prior to the effective date of the merger, his or her FFB Pension Plan accrued benefit shall receive credit for theirconsist of a past service benefit equal to his or her accrued benefit under the Bank Pension Plan immediately prior to the effective date of the Merger plus a future service benefit based upon his or her service after the effective date of the Merger with the companies participating in FFB Pension Plan. Service with Bank for purposesprior to the effective date of calculating years of servicethe Merger shall be counted for eligibility and vesting purposes only under the First Financial Bancorp ThriftFFB Pension Plan. 12.4.3 The National Bank of Hastings 401(k) Employee Savings Plan ("ThriftBank Savings Plan") shall continue in effect until the first January 1 or July 1 coinciding with or next following the effective date of the Merger (the "Initial Entry Date"). No contributions shall be made to the Bank Savings Plan with respect to compensation paid after the Initial Entry Date and the First Financial Bancorp Employees' - 16 - 131 Pension Plan ("Pension Plan"). Prior service withaccounts of all participants in the Bank Savings Plan shall notbecome fully vested and nonforfeitable on the Initial Entry Date. After the Initial Entry Date, the Bank Savings Plan may be credited, however,maintained as a frozen plan for purposes of calculating years of service for benefit accrual purposes underan indefinite period or merged into the PensionFFB Thrift Plan. Former employeesAs of the Bank who satisfy the applicable eligibility requirements under the Pension Plan shall be eligible to participate immediately in the Pension Plan as of the Effective Time. Former employees of the Bank satisfying the applicable eligibility requirements under theInitial Entry Date, FFB Thrift Plan shall be eligibleextended to participate on the first entry date (January 1 or July 1) following the Effective Time. Formereligible employees of Bank. Service with Bank prior to the Bank who are employed by ILB aseffective date of the Effective TimeMerger shall also receive creditbe counted for prior service witheligibility purposes under FFB Thrift Plan. 17 132 12.4.4 Nothing contained in this Section shall be deemed to constitute an agreement to employ or continue to employ any employee of Bank or restrict the Bank for purposesright of determining eligibility for all otherFFB to modify or terminate any employee benefits offeredbenefit plan, policy or practice applicable to employees of ILB, including, but not limitedBank. Notwithstanding the foregoing to group health coverage, group term life and accidental death and dismemberment coverage, and short-term and long-term disability coverage. Former employeesthe contrary, FFB will honor the terms of the Bank who satisfyDeferred Compensation and Non-Compete agreement with Larry J. Kornstadt and the applicable eligibility requirements to participate in said other employee benefits shall be eligible to participate immediately therein as of the Effective Time. In addition,six Selective Retirement Plans for Certain Employees, which employees are named in the event that former employees of the Bank who are employed by ILB as of the Effective Time are subjectDisclosure Schedule, and which agreements and plans were furnished to any pre-existing conditions exclusions or limitations under the group health plan for employees of ILB ("ILB Health Plan"), FFB or ILB shall either (i) obtain for said former employees other health insurance comparableprior to the ILB Health Plan or (ii) self-insure said former employees as necessary to place them in a position not substantially more or less advantageous to them than if they were covered under the ILB Health Plan. Furthermore, former employeesexecution of the Bank who are employed by ILB as of the Effective Date shall receive credit under the ILB Health Plan for amounts paid toward the satisfaction of the yearly deductibles and yearly payment limits under the Bank's group health plan. 12.6this Agreement. 12.5 EXPENSES. Upon a termination of this Agreement as provided in Section 13.4, each party will pay all costs and expenses of its performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with, including fees, expenses and disbursements of its accountants and counsel. 12.712.6 FURTHER ASSURANCES. If at any time the Surviving Corporation will consider or be advised that any further assignment or assurance in law or other action is necessary or desirable to vest, perfect, or confirm, of record or otherwise, in the Surviving Corporation, the title to any property or rights of F&MHFC acquired or to be acquired by or as a result of the Merger, the proper officers and directors of F&MHFC and the Surviving Corporation, respectively, will be and they hereby are severally and fully authorized to execute and deliver such proper deeds, assignments and assurances in law and take such other action as may be necessary or proper in the name of F&MHFC or the Surviving Corporation to vest, perfect or confirm title to such property or rights in the Surviving Corporation and otherwise carry out the purposes of this Agreement. 12.8 DIRECTOR AND OFFICER LIABILITY INSURANCE. Prior to the Effective Time, F&M shall pay the single premium to continue insurance coverage, under the policy of director and officer liability insurance presently maintained by F&M or the Bank, insuring those individuals serving, at any time during the three (3) years preceding the Effective Time, as directors or officers of F&M or the Bank, with respect to claims made during the three (3) years after the - 17 - 132 Effective Time as to acts or omissions occurring on or within the three (3) years preceding the Effective Time. 12.912.7 POOLING. Each of F&M,Neither HFC, Bank, FFB and FFB'snor any of its consolidated Subsidiaries has used and will use its best effortstaken or agreed to refrain from takingtake any action that would prevent F&MHFC and FFB from accounting for the business combination to be effected by the Merger as a "pooling of interests." F&MHFC has received from its independent accountants, Crowe, Chizek and Company LLP, a letter stating that, based upon Crowe, Chizek and Company'sCompany LLP's review of such relevant documents and information which Crowe, Chizek and Company LLP deemed relevant, such firm is currently unaware of any reason why the business combination to be effected by the Merger cannot be accounted for as a "pooling of interests" in regard to F&MHFC and the Bank. FFB has received from its independent accountants, Ernst & Young LLP, a letter stating that, based upon Ernst & Young's review of such relevant documents and information which Ernst & Young LLP deemed relevant, such firm is currently unaware of any reason why the business combination to be effected by the Merger cannot be accounted for as a "pooling of interests" in regard to FFB and its consolidated Subsidiaries. 12.1018 133 12.8 AUDITED FINANCIAL STATEMENTS. As soon as reasonably practicable, F&MHFC will deliver to FFB the information required by Item 17 of the instructions to Registration Statement Form S-4, including but not limited to a copy of its consolidated balance sheet as of April 30,December 31, 1995 and 1994 and related consolidated statements of income, changes in shareholders' equity and cash flows for the fiscal years ended April 30,December 31, 1995, 1994 and 1993, and such financial statements for the most recently ended fiscal year will be in the format required by the Securities and Exchange Commission and will include a Management's Discussion and Analysis of Financial Condition and Results of Operations section. If the effective date of the Registration Statement described in Section 12.3 is after October 31, 1995, F&MUpon request by FFB, HFC will deliver to FFB a copy of its balance sheet (unaudited) and related statements of income and cash flows (unaudited) for the six-monthsix and/or nine months period ending, October 31,June 30, 1996 and 1995, and/or the nine-month period ending January 31,and September 30, 1996 and 1995, as applicable, in each case including the notes thereto. All of such financial statements shallwill present fairly the financial positions as of and at the datedates shown and the results of operations for the periods covered thereby. They shallwill have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods indicated, except as otherwise indicated in the notes thereto. All liabilities of F&MHFC (including any contingent liabilities), as of the date of each balance sheet, shallwill be properly accrued in such balance sheet or disclosed in the related footnotes in accordance with generally accepted accounting principles. Each of such consolidated statements of earnings of F&M shallHFC will be fairly presented in accordance with generally accepted accounting principles for the periods indicated. 12.11 SEC FILINGS. Within 15 days after the date hereof, FFB will deliver to F&M copies of its Forms 10-K, 10-Q and 8-K that have been filed with the SEC since December 31, 1992. 12.1212.9 PRESS RELEASES. The parties shallwill consult with each other as to the form and substance of any press release, written communication with their shareholders, or other public - 18 - 133 disclosure of matters related to this Agreement, and a party shallwill not issue any such press release, written communication, or public disclosure without the prior consent of the other party, which consent shallwill not be unreasonably withheld or delayed; provided, however, that nothing contained herein shallwill prohibit any party, following notification to the other party, from making any disclosures which its counsel deems necessary to conform with requirements of law or the rules of NASDAQ. 12.1312.10 FIDUCIARY RESPONSIBILITY. F&M shallHFC will not, directly or indirectly, and shallwill instruct and otherwise use its diligent efforts to cause its officers, directors, employees, agents and advisors not to, directly or indirectly, solicit or initiate any proposals or offers from any person or entity, or discuss or negotiate with any such person or entity, relating to any acquisition or purchase of all or a material amount of the assets of, or any equity securities of, or any merger or business combination with, F&MHFC (such transactions are referred to herein as "Acquisition Transactions"),; provided, however, that nothing contained in this section shallwill prohibit (i) F&MHFC from furnishing information to, or entering into discussions or negotiations with, any person or entity that makes an unsolicited proposal of an Acquisition Transaction if and to the extent that (a) the Board of Directors of F&M,HFC, after consultation with and based upon the written advice of legal counsel, determines in good faith that such action is required for the directors of F&MHFC to fulfill their fiduciary duties and obligations to the F&MHFC shareholders and other constituencies under IndianaMichigan law, taking 19 134 into consideration the bidding procedures engaged in connection with the transactions contemplated hereby and (b) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, F&MHFC provides immediate written notice to FFB to the effect that it is furnishing information to, or entering into discussions or negotiations with, such person or entity, or (ii) the Board of Directors of F&MHFC from failing to make, withdrawing or modifying its recommendation to shareholders regarding the merger with FFB following receipt of a proposal for an Acquisition Transaction if the Board of Directors of F&M,HFC, after consultation with and based upon the written advice of legal counsel, determines in good faith that such action is required for the directors of F&MHFC to fulfill their fiduciary duties and obligations to the F&MHFC shareholders and other constituencies under IndianaMichigan law, taking into consideration the bidding procedures engaged in connection with the transactions contemplated hereby. 12.14 CONTINUED EMPLOYMENT OF BANK EMPLOYEES. FFB shall itself employ, or cause ILB or another12.11 LARRY J. KORNSTADT. Larry J. Kornstadt agrees that he will remain the President, Chairman and Chief Executive Office of its affiliates to employ,Bank for at least a period of two (2) years aftersix months following the Effective Time, those persons who are employeeseffective time of the Merger. Upon Mr. Kornstadt's retirement from the position of President and Chief Executive Officer of Bank, immediately prior to the Effective Time ("Retained Employees") exceptMr. Kornstadt agrees that he will remain as Chairman of Bank for voluntary terminationsso long as mutually agreed by Mr. Kornstadt and terminations for just causes. During such period the compensation of a Retained Employee shall be reviewed, but not reduced, in accordance with the "Indiana Lawrence Bank Pay System Documentation and Review Procedures" in effect as of the date hereof. 12.15 PUBLICATION OF FINANCIAL RESULTS. In accordance with the Codification of Financial Reporting Policies of the Securities and Exchange Commission, in order to permit the sale of Deliverable Shares following the Effective Time and also to preserve the treatment of the transactions described herein as a pooling of interests for accounting purposes, FFB agrees to - 19 - 134 publish the financial results of the combined operations of FFB and F&M and the Bank, covering at least thirty (30) days of such combined operations, no later than the last to occur of (a) sixty (60) days following the end of the month in which the Effective Time occurs and (b) ten (10) days following delivery of such financial information with respect to the operations previously owned by F&M and the Bank as FFB considers reasonably necessary to prepare the combined financial results described in this Section.FFB. 13. CONDITIONS PRECEDENT; TERMINATIONSPRECIDENT; TERMINATIONS. 13.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES. The obligations of each of the parties hereto to effect the Merger is subject to the fulfillment on or prior to the Effective Timeeffective time of the Merger of the following conditions precedent: 13.1.1 The Merger shallwill have been approved by the FRB or the entity to which the FRB has delegated authority to grant such approvals,delegate, and by any other governmental authority having jurisdiction and any applicable waiting period shallwill have expired, with no such approval or authorization containing any provision which would be materially adverse to the merged businesses of F&MHFC and FFB as contemplated by this Agreement. 13.1.2 No suit, action, investigation by any governmental body, or other legal or administrative proceedings shallwill have been brought or threatened which materially questions the validity or legality of the transactions contemplated herein. For the purposes hereof, inquiries which could give rise to any such suit, investigation or proceeding given by any governmental agency may, at the option of either party, be deemed such a threat. 13.1.3 The parties hereto shallwill have obtained any and all consents required for the consummation of the Merger or for the preventing of any default under any contract, agreement or permit of the parties hereto, which, if not obtained or made, is reasonably likely to have, individually or in the aggregate, a material adverse effect on the combined business affairs of F&MHFC and FFB. 20 135 13.2 CONDITIONS PRECEDENT TO FFB'S OBLIGATIONS. The obligation of FFB to effect the Merger will be subject to the following conditions (which may be waived in writing by FFB): 13.2.1 The representations and warranties of F&MHFC herein contained will be true as of and at the Effective Timeeffective time of the Merger with the same effect as though made at such time; F&MHFC will have performed all obligations and complied with all covenants required by this Agreement to be performed or complied with by it prior to the Effective Time;effective time of the Merger; and F&MHFC will have delivered to FFB a certificate, dated the effective date of the Merger and signed by its president or one of its vice presidents and its secretary or one of its assistant secretaries, to both such effects. 13.2.2 Except as set forth in the Disclosure Statement, noNo material change in or event affecting the corporate status, businesses, operations or condition (financial or otherwise) of either of F&MHFC or the Bank will have occurred since April 30,December 31, 1995, (whether or not covered - 20 - 135 by insurance), other than changes in the ordinary coursenone of business and changes permitted by Section 11, which have nothas been in the aggregate, materially adverse in relation to F&M.HFC, taken as a whole, and no other event or condition of any character will have occurred or arisen since that date which will have materially and adversely affected the corporate status, businesses, operations or financial condition of HFC. 13.2.3 FFB will have received from Ice Miller DonadioWerner & Ryan,Blank Co., L.P.A., counsel for F&M,HFC, a favorable opinion, dated immediately prior to the Effective Time,effective time of the Merger, in form and substance reasonably satisfactory to FFB's counsel.counsel and substantially in the form of the attached Exhibit B. In rendering this opinion, such counsel may rely on certificates of public officials and of corporate officers, opinions of recognized local counsel in jurisdictions where such counsel is not qualified to practice, and such other evidence as ithe may deem appropriate. The provisions of the preceding sentence are applicable to all other opinions of counsel to be delivered hereunder. 13.2.4 A Registration Statement on Form S-4 under the 1933 Act will have become effective relating to the shares of FFB which the shareholders of F&MHFC will receive at the Effective Time.effective time of the Merger. 13.2.5 FFB will have received ana favorable ruling from the Internal Revenue Service, or opinion of counsel, in form and substance satisfactory to FFB and its counsel, to the effect that, under the Internal Revenue Code of 1986, as amended (the "IRC"),IRC, and particularly Section 368(a)(1)(A) thereof,, no gain or loss will be recognized to FFB or its shareholders or to F&MHFC or its shareholders as a result of the Merger except for gain (but not loss) on cash received by the shareholders of F&M.HFC. 21 136 13.2.6 FFB will have received such written consents and confirmations (or opinions of its counsel to the effect that such consents or confirmations are not required), as itthey may reasonably request to the effect that the Surviving Corporation will succeed upon consummation of the Merger to all of F&M'sHFC's right, title and interest in and to its material contracts, agreements, leases and other commitments and that the Surviving Corporation will possess and enjoy all material licenses, permits and other governmental authorizations possessed by F&MHFC at the date hereof. FFB will have received those approvals and consents described in Section 10.12 hereof. 13.2.7 At the date of signing this Agreement and immediately prior to the Effective Time,effective time of the Merger, FFB shallwill receive from FFB's independent accountants letters to the effect that they are not aware of any reason that FFB is not in compliance with the pooling of interests criteria as specified under APB No. 16, and that, accordingly, the Merger can be accounted for as a pooling of interests from FFB's perspective. 13.2.8 FFB shallwill have had performed and reviewed the results of asuch Phase I Environmental Site Assessment of the real estate owned or leased by F&MSurvey and is satisfied with the results thereof and has determined that no further testing is required and no remedial action is necessary, or if the results of such Assessment arePhase I is not satisfactory in form and substance to FFB,it, FFB and F&M shallHFC will have reached a reasonable agreement as to the remedial actions necessary to correct any unsatisfactory conditions and the payment for such remedial actions. - 21 - 136 13.3 CONDITIONS PRECEDENT TO F&M'SHFC'S OBLIGATION. The obligation of F&MHFC to effect the Merger will be subject to the following conditions (which may be waived in writing by F&M)HFC): 13.3.1 The representations and warranties of FFB herein contained will be true as of and at the Effective Timeeffective time of the Merger with the same effect as though made at such time; FFB will have performed all obligations and complied with all covenants required by this Agreement to be performed or complied with by it prior to the Effective Time;effective time of the Merger; and FFB will have delivered to F&MHFC a certificate, dated the effective date of the Merger and signed by its president or one of its vice presidents and its secretary or one of its assistant secretaries, to both such effects. 13.3.2 No material change in the corporate status, businesses, operations or condition (financial or otherwise) of FFB and its consolidated Subsidiaries will have occurred since December 31, 19941995 (whether or not covered by insurance), none of which has been materially adverse in relation to FFB and its consolidated Subsidiaries, taken as a whole, and no other event or condition of any character will have occurred or arisen since that date which will have materially and adversely affected the corporate status, businesses, operations or financial condition of FFB and its consolidated Subsidiaries, taken as a whole. 22 137 13.3.3 F&MHFC will have received from Frost & Jacobs, counsel for FFB, a favorable opinion, dated immediately prior to the Effective Time,effective time of Merger, in form and substance reasonably satisfactory to F&M's counsel.HFC's counsel and substantially in the form of the attached Exhibit C. In rendering this opinion, such counsel may rely on certificates of public officials and of corporate officers, opinions of recognized local counsel in jurisdictions where such counsel is not qualified to practice, and such other evidence as he may deem appropriate. The provisions of the preceding sentence are applicable to all other opinions of counsel to be delivered hereunder. 13.3.4 A Registration Statement on Form S-4 under the 1933 Act will have become effective relating to the shares of FFB common stock which the shareholders of F&MHFC will receive at the Effective Time.effective time of the Merger. 13.3.5 F&MHFC will have received an opiniona favorable ruling from Professional Bank Services, Inc. as independent investment advisor satisfactory to it as to the fairness of the proposed transaction with FFB, from a financial point of view, to F&M's shareholders. 13.3.6 F&M will have received anInternal Revenue Service, or opinion of counsel, in form and substance satisfactory to F&M,HFC, to the effect that, under the IRCInternal Revenue Code of 1986, as amended (i) no gain or loss will be recognized to F&MHFC as a result of the Merger, and (ii) no gain or loss (except in respect of fractional share interests sold)sold or dissenter's receiving cash) will be recognized to F&M'sHFC's shareholders as a result of their exchange of F&M Sharescommon stock of HFC for common stock of FFB, and covering such other matters as are typically covered by such opinion. 13.3.713.3.6 At the date of signing this Agreement and immediately prior to the Effective Time, F&M shalleffective time of the Merger, HFC will receive from F&M'sHFC's independent accountants a letterletters to the effect - 22 - 137 that they are not aware of any reason that F&MHFC is not in compliance with the pooling of interests criteria as specified under APB No. 16, and that, accordingly, the Merger can be accounted for as a pooling of interests from F&M'sHFC's perspective. 13.3.8 At a special meeting of shareholders of F&M called for the purpose of considering the Merger, the Merger will have been approved by an affirmative vote of the holders of at least seventy-five percent of the F&M Shares entitled to be voted in person or by proxy at such meeting. 13.4 TERMINATION AND ABANDONMENT. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and abandoned at any time before the Effective Time,effective time of the Merger, whether before or after adoption or approval of this Agreement by the shareholders of F&M,HFC, under any one or more of the following circumstances: 13.4.1 By the mutual consent of the Boards of Directors of FFB and F&M;HFC; 13.4.2 By FFB if the holders of 10.0%2.0% or more of the F&M Shares outstanding immediately prior to the Effective Timeshares of common stock of HFC will be entitled to receive cash in exchange for their F&MHFC shares pursuant to perfected dissenters' rights under the IndianaMichigan Business Corporation Law;Act; 13.4.3 By FFB if, prior to the Effective Time,effective time of the Merger, the conditions set forth in Sections 13.2.1 through 13.2.8, inclusive, will not have been met; 13.4.4 By F&MHFC if, prior to the Effective Time,effective time of the Merger, the conditions set forth in Sections 13.3.1 through 13.3.8,13.3.6, inclusive, will not have been met; 23 138 13.4.5 By either FFB or F&MHFC if prior to the Effective Time,effective time of the Merger, the conditions set forth in Sections 13.1.1 through 13.1.3, inclusive, shallwill not have been met, or any action or proceeding before any court or other governmental body or agency will have been instituted or threatened to restrain or prohibit the Merger and such constituent corporation deems it unadvisable to proceed with the Merger; 13.4.6 By either FFB or F&MHFC if the requisite approval of the shareholders of F&MHFC will not have been obtained or if the Effective Time shalleffective time of the Merger will not have occurred on or before April 1, 1996;30, 1997; or 13.4.7 By FFB if the Average Price is less than $28.48average of the bid and ask price of FFB shares for the twenty day period associated with the Exchange Ratio as set forth in Section 6.3.1 falls below $27.625 per share or by F&MHFC if the Average Price is greater than $38.53average of the bid and ask price of FFB shares for the twenty day period associated with the Exchange Ratio as set forth in Section 6.3.1 exceeds $37.375 per share (in either case, as may be adjusted by the declaration of a stock dividend, stock split or other such recapitalization). 13.5 EFFECT OF TERMINATION. Upon any such termination and abandonment, of this Agreement under any one or more of the circumstances described in Section 13.4, neither party will have any liability or obligation hereunder to the other, except for the return of all documents - 23 - 138 exchanged and the preservation of the confidentiality by each party of the information exchanged. In the event that FFB or F&M declines to effect the Merger notwithstanding the performance of all conditions precedent to the obligation of FFB or F&M, as the case may be, to effect the Merger, the non-breaching party shall be entitled to recover from the breaching party all its expenses, including reasonable attorney's fees and fees of other professionals, incurred in connection with the Merger, and shall be entitled to such other remedies against the defaulting party as may exist at law or in equity. 13.6 EXPENSES. Upon a termination of this Agreement as provided in Section 13.4, each party will pay all costs and expenses of its performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with, including fees, expenses and disbursements of its accountants and counsel. 13.7 CLOSING. Subject to the satisfaction of the conditions precedent specified in Section 13.1 through 13.3 hereof and of the terms set forth herein, the consummation of the transactions contemplated by this Agreement, the Agreement of Merger and the Articles of Merger (the "Closing") shall take place at a place and time satisfactory to the parties on the last day of the month within which occurs the later of the date on which the approvals specified in Section 12.4 have become effective and the date upon which the shareholder approval specified in Section 13.3.8 has been obtained (or at such other place or on such other date and time as the parties may agree)(the "Closing Date"). At the Closing, such documents as are contemplated by 13.2 and 13.3 to be delivered at Closing shall be delivered, including the certificates specified in Sections 13.2.1 and 13.3.1, and the parties shall execute and cause to be filed in the appropriate offices the Articles of Merger, Agreement of Merger, and such other documents as may be deemed necessary or advisable in the opinion of FFB to effectuate the Merger as promptly as practicable. 14. GENERAL PROVISIONS. 14.1 DEFINITIONS. "Subsidiaries" as used herein means any corporation 50% or more of whose outstanding voting securities are owned directly or indirectly by FFB or F&M,HFC, as the context may require, whether consolidated or unconsolidated. The headings in this Agreement will not affect in any way its meaning or interpretation. 14.2 AMENDMENTS. Any of the terms or conditions of this Agreement may be modified or waived at any time before the Effective Timeeffective time of the Merger by the party which is, or the shareholders of which are, entitled to the benefit thereof upon the authority of the Board of Directors of such party.party, provided that any such modification or waiver will in the judgment of the party making it not affect substantially or materially and adversely the benefits to such party or its shareholders intended under this Agreement. 24 139 14.3 NOTICES. All notices, demands, requests, consents or approvals required hereunder will be in writing and will be given (and shallwill be deemed to have been duly given upon receipt) by delivery in person or by certified or registered mail, return receipt requested, postage prepaid, addressed to such party at the address set forth below or to such other address as any party may give to the other by like notice: - 24 - 139 If toIF TO FFB: First Financial Bancorp. 300 High Street P.O. Box 476 Hamilton, Ohio 45012-0476 ATTENTION: Stanley N. Pontius, President and Chief Executive Officer With copies to: Frost & Jacobs 2500 PNC Center 201 East Fifth Street P.O. Box 5715 Cincinnati, Ohio 45201-5715 ATTENTION: Neil Ganulin If to F&M: F & M Bancorp 729-31 MainIF TO HFC: Hastings Financial Corporation 241 W. State Street P.O. Box 567 Rochester, Indiana 46975-0567Hastings, Michigan 49058 ATTENTION: WilliamLarry J. Gordon, PresidentKornstadt With copies to: Ice Miller DonadioWerner & Ryan One American Square, Box 82001 Indianapolis, Indiana 46282Blank Co., L.P.A. 7205 West Central Avenue Toledo, Ohio 43617 ATTENTION: Thomas H. RistineC. Blank 14.4 BINDING NATURE OF AGREEMENT. This Agreement will be binding upon and inure to the benefit of FFB and F&MHFC and their respective successors and permitted assigns. 14.5 ASSIGNMENT. Neither this Agreement nor any obligation or right hereunder may be assigned by any party hereto, whether directly or indirectly, without the prior written consent of the other party. 14.6 GOVERNING LAW. This Agreement will in all respects be governed and construed in accordance with the laws of the State of Indiana.Ohio, except to the extent superseded by the federal banking laws of the United States. 25 140 14.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same instrument. - 25 - 140 14.8 TERMINATION OF REPRESENTATIONS AND WARRANTIES. All representations, warranties and covenants in this Agreement or in any closing certificate delivered pursuant to this Agreement shall expire with, and be terminated and extinguished at, the Effective Time; provided, however, that the covenants of FFB contained in Sections 12.5, 12.8, 12.14 and 12.15 hereof shall survive the Effective Time and may be enforced by any person entitled to the benefits thereof. IN WITNESS WHEREOF, pursuant to authority duly given by its Board of Directors, each of FFB, and F&MHFC has caused this Agreement to be executed and attested by its authorized officers as of the date and year first above written. FIRST FINANCIAL BANCORP. ATTEST: By: /s//s/ Stanley N. Pontius --------------------------- /s/ Richard E. WeinmanMichael R. O'Dell ----------------------------------- - --------------------------------- Print Name: Stanley N. Pontius - ---------------------- Richard E. Weinman Secretary -------------------------- Title: President/CEO F & M BANCORP------------------------------ HASTINGS FINANCIAL CORPORATION ATTEST: By:/s/ Larry J. Kornstadt /s/ George R. Hoover By:David C. Wren ---------------------------------- - --------------------------------- Larry J. Kornstadt Secretary President /s/William Larry J. Gordon - --------------------------- ------------------------------ George R. Hoover, Secretary WilliamKornstadt ------------------------------------- Larry J. Gordon, President -Kornstadt, as to Section 12.11 26 - 141 FIRST AMENDMENTEXHIBIT A - -------------------------------------------------------------------------------- MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU - -------------------------------------------------------------------------------- (FOR BUREAU USE ONLY Date Received ________________________ ________________________ ________________________ - -------------------------------------------------------------------------------- CERTIFICATE OF MERGER/CONSOLIDATION For use by Domestic or Foreign Corporations (Please read information and instructions on last page) Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), and/or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporations execute the following Certificate: 1. The Plan of Merger (Consolidation) is as follows: a. The name of each constituent corporation and its corporation identification number (CID) is: ________________________________________________________________________________ ________________________________________________________________________________ b. The name of the surviving (new) corporation and its corporation identification number (CID) is: ________________________________________________________________________________ c. For each constituent stock corporation, state:
Designation and number of outstanding Indicate class or Indicate class or shares in each class series of shares series entitled Name of corporation or series entitled to vote to vote as a class ___________________ ____________________ _________________ __________________ ___________________ ____________________ _________________ __________________ ___________________ ____________________ _________________ __________________ ___________________ ____________________ _________________ __________________ ___________________ ____________________ _________________ __________________
If the number of shares is subject to change prior to the effective date of the merger or consolidation, the manner in which the change may occur is as follows: 142 d. For each constituent nonstock corporation (i) If it is organized on a membership basis, state (a) the name of the corporation, (b) a description of its members, and (c) the number, classification and voting rights of its members. (ii) If it is organized on a directorship basis, state (a) the name of the corporation, (b) a description of the organization of its board, and (c) the number, classification and voting rights of its directors. e. The terms and conditions of the proposed merger (consolidation), including the manner and basis of converting the shares of , or membership or other interests in, each constituent corporation into shares, bonds, or other securities of, or membership or other interest in, the surviving (consolidated) corporation, or into cash or other consideration, are as follows: f. If a consolidation, the Articles of Incorporation of the consolidated corporation are attached to this Certificate and are incorporated herein. If a merger, the amendments to the Articles, or a restatement of the Articles, of the surviving corporation to be effected by the merger are as follows: g. Other provisions with respect to the merger (consolidation) are as follows: THE PLAN OF MERGER WILL BE FURNISHED BY THE SURVIVING CORPORATION, ON REQUEST AND WITHOUT COST, TO ANY SHAREHOLDER OF ANY CONSTITUENT CORPORATION. 2. (Complete for any foreign corporation only) This merger (consolidation) is permitted by the laws of the state of ____________________________, the jurisdiction under which _______ ___________________________(name of foreign corporation) is organized and the plan of merger (consolidation) was adopted and approved by such corporation pursuant to and in accordance with the laws of that jurisdiction. 143 3. (Complete only if an effective date is desired other than the date of filing. This date must be no more than 90 days after receipt of this document in this office). The merger (consolidation) shall be effective on the _______ day of ____________________, 19_____. 4. (Complete applicable section for each constituent corporation) a. (For domestic profit corporations only) The plan of merger was approved by the unanimous consent of the incorporators of_____________________________________________________ ________________________________which has not commenced business, has not issued any shares, and has not elected a Board of Directors. (Incorporators must sign on this page of the Certificate.) b. (For profit corporations involved in a merger only) The plan of merger was approved by the Board of Directors of ______________________________________________________________________ _________________________________, the surviving corporation, without the approval of the shareholders of that corporation in accordance with Section 701 of the Act. c. (For profit corporations only) The plan of merger was adopted by the Board of Directors of the following constituent corporations: and was approved by the shareholders of those corporations in accordance with Section 703a. d. (For nonprofit corporations only) The plan of merger or consolidation was adopted by the Board of Directors (i) Complete if organized upon a stock or membership basis) of ___________________________________________________________________ and was approved by the shareholders or members of that corporation in accordance with Sections 701 and 703(1) and (2), or pursuant to Section 407 by written consent and written notice, if required. (ii) (Complete if organized upon a directorship basis) of ___________________________________________________________________ in accordance with Section 703(3). SIGN THIS AREA FOR ITEM 4(a). Signed this ________ day of ________________________________, 19_____. ____________________________________ ____________________________________ ____________________________________ ____________________________________ 144 Sign this area for items 4(b), 4(c), or 4(d). Signed this ________ day of ________________________________________, 19_____. _______________________________________________________________________________ (Name of Corporation) By ____________________________________________________________________________ (Signature) _______________________________________________________________________________ (Type or Print Name and Title) Signed this ________ day of ________________________________________, 19_____. _______________________________________________________________________________ (Name of Corporation) By _____________________________________________________________________________ (Signature) ________________________________________________________________________________ (Type or Print Name and Title) 145 DOCUMENT WILL BE RETURNED TO NAME AND Name of person or organization MAILING ADDRESS INDICATED IN THE BOX BELOW. remitting fees: Include name, street and number (or P.O. box), city, state and ZIP code. ______________________________ ______________________________ Preparer's name and business telephone number: ______________________________ (513) _________________________ INFORMATION AND INSTRUCTIONS 1. The merger/consolidation cannot be filed until this form, or a comparable document, is submitted. 2. Submit one original copy of this document. Upon filing, a microfilm copy will be prepared for the records of the Corporation and Securities Bureau. The original copy will be returned to the address appearing in the box above as evidence of filing. Since this document must be microfilmed, it is important that the filing be legible. Documents with poor black and white contrast, or otherwise illegible, will be rejected. 3. This certificate is to be used pursuant to sections 701 through 707 of the Act for the purpose of merging or consolidating two or more domestic and/or foreign corporations and pursuant to Section 731 or 735 if the merger or consolidation involves one or more foreign corporations. 4. If more than two corporations are merging or consolidating, the certificate may be adjusted as necessary, or the format may be used as a guide in drafting your own certificate. If additional space is required for any section, continue the section on an attachment. 5. Item 3 - This document is effective on the date approved and filed by the Bureau. A later effective date, no more than 90 days after the date of delivery, may be stated. 6. A domestic nonprofit charitable purpose corporation must obtain the consent of the Michigan Attorney General if it is merging or consolidating into a for profit corporation or a foreign nonprofit corporation that does not have a certificate of authority with Michigan. Contact the Charitable Trust Division, Michigan Attorney General, Room 670, Law Building, 525 West Ottawa, Lansing, Michigan 48913 at least 45 days before the desired effective date of the merger or consolidation. 7. This certificate must be signed in ink by the president, vice-president, chairperson, or vice-chairperson of each corporation that is merging or consolidating, unless the incorporators of a domestic profit corporation approve the merger or consolidation pursuant to sections 706 and 707 of the Act. In that event, the certificate must be signed in ink by the majority of the incorporators if more than one of that corporation in item 4. 146 8. FEES: For each domestic corporation (Make remittance payable to the State of Michigan. Include corporation name and CID Number on check or money order)...............................................$50.00 Merger - If the survivor is a domestic profit corporation whose authorized shares are increased: each additional 20,000 authorized shares........................................................$30.00 Consolidation - Franchise fees are required for the articles of incorporation of the new consolidated corporation, if it is a domestic corporation. Credit - If a foreign corporation authorized to transact business in this State merges or consolidates into a domestic profit corporation, the amount of franchise fees required to be paid by that domestic corporation shall be reduced by the initial or additional franchise fees paid to this State by the foreign corporation. 9. Mail form and fee to: Michigan Department of Commerce, Corporation and Securities Bureau, Corporation Division, P.O. Box 30054, 6546 Mercantile Way, Lansing, MI 48909, Telephone: (517) 334-6302 147 EXHIBIT B (Opinion of HFC Counsel) --------- ___________________________, 1996 First Financial Bancorp. 300 High Street P.O. Box 476 Hamilton, Ohio 45012-0476 Ladies and Gentlemen: This opinion is provided to you on behalf of HASTINGS FINANCIAL CORPORATION ("HFC") in connection with the consummation of a Plan and Agreement of Merger (the "Agreement") between HFC and First Financial Bancorp. ("First Financial"), dated ____________, 1996 pursuant to which HFC will be merged into First Financial (the "Merger") effective as of ____________, 19__ at 12:01 a.m. ("Effective Time of the Merger"). This opinion is given to you pursuant to Section 13.2.3 of the Agreement. Capitalized terms defined in the Agreement and not otherwise defined herein shall have the meanings given those terms in the Agreement. As to various questions of fact material to our opinion, we have relied upon the representations made in the Agreement and upon a certificate of an officer of HFC (the "Officer's Certificate"). We have examined such certificates of public officials, corporate documents and records and other certificates, opinions and instruments and have made such other investigations as we have deemed necessary in connection with the opinions hereinafter set forth. In rendering the opinions set forth herein, we have assumed the authenticity of all documents submitted to us as originals, the due execution of and genuineness of the signatures on such documents, the legal capacity of all signing parties to such documents and the conformity to original documents of all photostatic copies of such documents submitted to us. In addition, with regard to any opinions given with regard to the laws of the State of Michigan, we have relied solely upon the opinion of _________. The opinions hereinafter expressed are limited to the laws of the States of Michigan and Ohio and are subject to the following additional qualifications: B-1 148 First Financial Bancorp. __________________, 1996 Page 2 (i) The enforceability of any provisions in the Agreement, or any rights granted to you pursuant to the Agreement, is subject to and may be affected by applicable state and/or federal bankruptcy, insolvency, reorganization, moratorium laws, or similar laws affecting the rights of creditors or debtors generally, and the application of general principles of equity and matters of public policy (whether considered in a proceeding at law or in equity) including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing. (ii) Any provisions requiring payment of attorney's fees and litigation expenses may not be enforceable. (iii) No opinion is expressed as to the enforceability of (a) self-help provisions, (b) waiver of constitutional rights, (c) provisions related to waiver of remedies (or the delay or omission of enforcement thereof), disclaimers, liability limitations with respect to third parties, liquidated damages or the creation of remedies not available under Michigan or Ohio law or (d) provisions pursuant to which HFC attempts to exempt itself from liability for its own negligence, fault or actions or providing for indemnification against criminal liability, civil penalties or punitive damages or against actions to the extent that the indemnitee has been grossly negligent or engaged in wilful misconduct. As used herein, the phrase "to the best of our knowledge" means we have relied, without any independent investigation or inquiry, solely upon (i) the Officer's Certificate and (ii) the actual knowledge, if any, of a limited number of attorneys in this firm who regularly perform legal services for HFC obtained in the scope of such representation. Based upon and subject to the foregoing, we are of the opinion that: 1. HFC is a corporation duly organized and validly existing under the laws of the State of Michigan and is registered as a bank holding company under the Banking Holding Company Act of 1956, as amended. HFC has the corporate power to carry on its businesses as they are now being conducted. 2. HFC's capitalization consists of 400,000 authorized shares of common stock (par value $1.00 per share), of which, as of the Effective Time of the Merger, 80,463 shares were issued and outstanding. Each issued share was validly issued, fully paid and non-assessable. To the best of our knowledge, there are no outstanding subscriptions, options, warrants, calls or rights of any kind relating to or providing for the issuance, sale, delivery or transfer of any class of securities of HFC. B-2 149 First Financial Bancorp. __________________, 1996 Page 3 3. National Bank of Hastings ("Bank") is a wholly owned subsidiary of HFC. HFC has no other subsidiaries. Bank is a national bank duly organized and validly existing under the laws of the United States. Bank has the corporate power to carry on its businesses as they are now being conducted and is qualified to do business in each jurisdiction in which the character and location of the assets owned by it, or the nature of the business transacted by it, requires qualification. All of the outstanding shares of stock of Bank are validly issued, fully paid and non-assessable, except as provided by federal law, and all such shares are owned by HFC free and clear of all liens, claims, charges or encumbrances. To the best of our knowledge, there are no outstanding subscriptions, options, warrants, calls or rights of any kind relating to or providing for the issuance, sale, delivery or transfer of any class of securities of Bank. 4. The execution and performance of the Agreement and the consummation of the transactions contemplated thereby will not: (i) violate, or conflict with, or require any consent under, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in the creation of any lien upon any of the assets of either of HFC or Bank, under any of the terms, conditions or provisions of the Articles of Incorporation or By-Laws of HFC, the Articles of Association or By-Laws of Bank, or of any note, bond, mortgage, indenture, deed of trust, material license, lease, agreement or other instrument or obligation of which we have knowledge and to which either of HFC or Bank is a party or by which either of HFC or Bank or any of their assets may be bound or affected or (ii) to the best of our knowledge, violate any order, writ, injunction, decree, statute, rule or regulation applicable to HFC, Bank or any of their assets. 5. All corporate action by HFC required in order to authorize the Merger, and the execution and delivery of all documents related thereto, and the performance of all actions contemplated thereby has been taken. This Agreement has been duly executed and delivered by HFC and is a valid and binding obligation of HFC in accordance with its terms. 6. Except as set forth in the Disclosure Schedule, to the best of our knowledge, there are no material suits, actions or legal or administrative proceedings pending or threatened against HFC or Bank, which, if adversely determined, might materially and adversely affect the financial condition, on a consolidated basis, of HFC and Bank or the conduct of their businesses, nor is there any decree, injunction, or order of any court, governmental department or agency outstanding against HFC or Bank having any such effect. B-3 150 First Financial Bancorp. __________________, 1996 Page 4 This opinion is given for the sole use and benefit of First Financial and no party or entity other than First Financial is entitled to rely on this opinion. This opinion is based upon facts and law in existence on the date hereof, and we disclaim any undertaking to advise you of changes occurring therein after the date hereof. Very truly yours, B-4 151 EXHIBIT C (Opinion of First Financial's Counsel) --------- (513) 651-6800 ____________________________, 1996 Hastings Financial Corporation 241 W. State Street Hastings, Michigan 49058 ATTENTION: Larry J. Kornstadt Ladies and Gentlemen: This opinion is provided to you on behalf of First Financial Bancorp. ("First Financial") in connection with the consummation of a Plan and Agreement of Merger (the "Agreement") among First Financial and Hastings Financial Corporation ("HFC"), dated _____________, 1996 pursuant to which HFC will be merged into First Financial (the "Merger") effective as of ______________, 19__ at 12:01 a.m. ("Effective Time of the Merger"). This opinion is given to you pursuant to Section 13.3.3 of the Agreement. Capitalized terms defined in the Agreement and not otherwise defined herein shall have the meanings given those terms in the Agreement. As to various questions of fact material to our opinion, we have relied upon the representations made in the Agreement and upon a certificate of an officer of First Financial (the "Officer's Certificate"). We have also examined such certificates of public officials, corporate documents and records and other certificates, opinions and instruments and have made such other investigations as we have deemed necessary in connection with the opinions hereinafter set forth. In rendering the opinions set forth herein, we have assumed the authenticity of all documents submitted to us as originals, the due execution of and genuineness of the signatures on such documents, the legal capacity of all signing parties to such documents and the conformity to original documents of all photostatic copies of such documents submitted to us. The opinions hereinafter expressed are limited to the laws of the State of Ohio and are subject to the following additional qualifications: (i) The enforceability of any provisions in the Agreement, or any rights granted to you pursuant to the Agreement, is subject to and may be affected by applicable state and/or federal bankruptcy, insolvency, reorganization, moratorium laws, or similar laws affecting the rights of creditors or debtors generally, and the application of general principles of equity and matters of public policy (whether considered in a proceeding at law or in equity) including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing. C-1 152 Hastings Financial Corporation _____________________, 1996 Page 2 (ii) Any provisions requiring payment of attorney's fees and litigation expenses may not be enforceable. (iii) No opinion is expressed as to the enforceability of (a) self-help provisions, (b) waiver of constitutional rights, (c) provisions related to waiver of remedies (or the delay or omission of enforcement thereof), disclaimers, liability limitations with respect to third parties, liquidated damages or the creation of remedies not available under Ohio and Michigan law or (d) provisions pursuant to which HFC attempts to exempt itself from liability for its own negligence, fault or actions or providing for indemnification against criminal liability, civil penalties or punitive damages or against actions to the extent that the indemnitee has been grossly negligent or engaged in wilful misconduct. As used herein, the phrase "to the best of our knowledge" means we have relied, without any independent investigation or inquiry, solely upon (i) the Officer's Certificate and (ii) the actual knowledge, if any, of a limited number of attorneys in this firm who regularly perform legal services for First Financial obtained in the scope of such representation. Based upon and subject to the foregoing, we are of the opinion that: 1. First Financial is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended and a savings and loan holding company under the Savings and Loan Holding Company Act. First Financial has the corporate power to carry on its businesses as they are now being conducted. 2. First Financial's capitalization consists of 25,000,000 authorized shares of common stock (par value $8.00 per share), of which, as of the Effective Time of the Merger, __________ shares were issued and outstanding. 3. The issuance of the shares of common stock of First Financial to HFC shareholders in exchange for their HFC common stock in connection with the Merger has been duly and validly authorized and, immediately after the Effective Time of the Merger, and, upon First Financial's receipt of the consideration provided in the Agreement and due issuance of the shares by First Financial's registrar, such shares will be duly issued, fully paid and non-assessable. No shareholder of First Financial has any pre-emptive right of subscription or purchase pursuant to First Financial's Articles of Incorporation with respect to the shares of common stock of First Financial to be issued to HFC shareholders in connection with the Merger. C-2 153 Hastings Financial Corporation _____________________, 1996 Page 3 4. The execution, delivery and performance of the Agreement and the consummation of the transactions contemplated thereby will not: (i) violate, or conflict with, or require any consent under, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in the creation of any lien upon any of the assets of First Financial, under the Articles of Incorporation or Regulations of First Financial, or of any note, bond, mortgage, indenture, deed of trust, material license, lease, agreement or other instrument or obligation of which we have knowledge and to which First Financial is a party or by which First Financial or any of its assets may be bound or affected or (ii) to the best of our knowledge, violate any order, writ, injunction, decree, statute, rule or regulation applicable to First Financial or any of its assets. 5. All corporate action by First Financial required in order to authorize the Merger, and the execution and delivery of all documents related thereto, and the performance of all actions contemplated thereby has been taken. The Agreement has been duly executed and delivered by First Financial and is the valid and binding obligation of First Financial in accordance with its terms. 6. To the best of our knowledge, there is no material litigation, proceeding, arbitration, governmental investigation or labor dispute pending or overtly threatened against First Financial or any of its consolidated Subsidiaries or its or their properties or businesses, other than litigation disclosed by First Financial in its annual and quarterly reports filed with the Securities and Exchange Commission ("SEC"). This opinion is given for the use and benefit of HFC and no party or entity other than HFC is entitled to rely on this opinion. This opinion is based upon facts and law in existence on the date hereof, and we disclaim any undertaking to advise you of changes occurring therein after the date hereof. Very truly yours, C-3 154 APPENDIX A PLAN AND AGREEMENT OF MERGER BETWEEN FIRST FINANCIAL BANCORP. AND F & M BANCORP THIS FIRST AMENDMENT of Plan and Agreement of Merger between First Financial Bancorp. and F & M Bancorp (hereafter called "this Amendment") dated as of December 15, 1995, by and between First Financial Bancorp. ("FFB") and F & M Bancorp ("F&M"), W I T N E S S E T H : WHEREAS, FFB and F&M entered into a Plan and Agreement of Merger dated September 11, 1995 (the "Agreement"), and WHEREAS, FFB and F&M now desire to amend the Agreement, as hereinafter set forth; NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows: Section 1. Amendment of Agreement. Section 11.2 of the Agreement is hereby amended to read as follows: 11.2. Dividends. From and after the date of this Agreement and prior to the Effective Time, neither FFB nor F&M will declare or pay any dividends on or make any distributions in respect of any shares of its capital stock, except that (i) FFB may declare and pay, on or about the dates when such dividends have customarily been declared and paid by it in the past, quarterly cash dividends in the amount of $0.26 or more (plus such additional amount, which may be stock dividends, if any, consistent with FFB's practices during recent years as its Board of Directors may determine) per share during each calendar quarter on the outstanding shares of FFB's common stock; and (ii) F&M may declare and pay cash dividends in an amount not to exceed the greater of (A) thirty percent (30%) of F&M's net earnings as determined by F&M for the year ending December 31, 1995, or (B) $198,000. For the period from December 31, 1995 until the Effective Time, and assuming the financial condition of F&M justifies such action, the parties agree to cooperate with each other to ensure that the shareholders of F&M receive a quarterly cash dividend from either F&M or FFB and that during the quarter in which the Effective Time occurs such shareholders of F&M do not receive cash dividends from both F&M and FFB.HASTINGS FINANCIAL CORPORATION 142 Section 2. Agreement Otherwise Unaffected. Except as set forth in Section 1 of this Amendment, the Agreement is not affected by this Amendment and shall remain in full force and effect. IN WITNESS WHEREOF, pursuant to authority duly given by its Board of Directors, each of FFB and F&M has caused this Agreement to be executed and attested by its authorized officers as of the date and year first above written. FIRST FINANCIAL BANCORP. By:_________________________________ Stanley N. Pontius, President/CEO Attest: _____________________________ Richard G. Weinman, Secretary F & M BANCORP By:________________________________ William J. Gordon, President Attest: ______________________________ George R. Hoover, Secretary -2- 143155 APPENDIX B FORM OF OPINION OF PROFESSIONAL BANK SERVICESAUSTIN ASSOCIATES, INC. TO BE ISSUED ON CONSUMMATION OF MERGER Professional Bank Services The 1000 Building 6200 Dutchman's Lane, Suite 305 Louisville, Kentucky 40205 ________________,(TO BE RETYPED ON AAI LETTERHEAD AND DATED AS OF THE DATE OF PROXY MATERIALS) DRAFT ----- ___________________, 1996 Board of Directors F & M Bancorp 729 MainHastings Financial Corporation 241 West State Street Rochester, Indiana 46975 DearHastings, Michigan 49058 Members of the Board: You have requested our opinion as investment bankers as to the fairness, from a financial perspective,point of view, to the commonHastings Financial Corporation ("HFC") and its shareholders of F & M Bancorp, Rochester, Indiana (the "Company")the terms of the proposed merger of the Company with First Financial Bancorp, Hamilton, Ohio ("FFB"). In the proposed merger, Company shareholders will receive FFB common shares equal to the quotient of $12,500,000 and the average of the closing prices for FFB Shares on the National Association of Securities Dealers Automated Quotations System - National Market System ("NASDAQ") for each of the twenty consecutive trading days ending on the second trading day prior to the Effective Time as defined by the Plan and Agreement of Merger dated July 2, 1996 ("Agreement") between FFBHFC and the Company (the "Agreement"First Financial Bancorp. ("First"). Professional Bank Services, Inc.The Agreement provides for the merger of HFC with and into First. The terms of the Agreement provide for aggregate consideration to be received by all HFC shareholders equal to $10,000,000 ("PBS"Merger Price") is a bank consulting firm, subject to an increase or decrease for the net retained earnings of HFC after January 1, 1997, through closing. Each outstanding share of HFC common stock will receive an amount equal to the Merger Price divided by the average price of First shares, determined in accordance with the Agreement, and divided by the total number of shares of HFC common stock outstanding (the "Exchange Rate"), subject to adjustment, as part of its investment banking business is continually engaged in reviewing the fairness, from a financial perspective, of bank acquisition transactions andfully described in the valuation of banksAgreement. HFC and other businesses and their securities in connection with mergers, acquisitions, estate settlements and other purposes. We are independent with respectFirst each has the right to abandon the parties of the proposed transaction. For purposes of this opinion, PBSMerger under certain limited conditions. In carrying out our engagement, we have reviewed and analyzed material bearing upon the historicalfinancial and operating condition of HFC and First, including but not limited to the following: (i) the Prospectus and Proxy Statement; (ii) the financial statements of HFC and First for the period 1991 through June 30, 1996; (iii) certain other publicly available information on HFC and First; (iv) publicly available information regarding the performance of certain other companies whose business activities were believed by us to be generally comparable to those of HFC and First; (v) the Companyfinancial terms, to the extent publicly available, of certain comparable transactions; and its wholly owned subsidiary Farmers & Merchants Bank of Rochester, Rochester, Indiana ("the "Bank") contained in: (i) FRY-9SP(vi) such other analysis and information as filed with the Federal Reserve as of June 30, 1995; (ii) June 30, 1995 Consolidated Reports of Condition and Income filed with the Federal Deposit Insurance Corporation by the Bank; (iii) December 31, 1994 and March 31, 1995 Uniform Bank Performance Reportwe deemed relevant. 156 Page 2 Members of the Bank; (iv) historical common stock trading activityBoard ______________, 1996 In our review and analysis, we relied upon and assumed the accuracy and completeness of the Company; and (v) the premisesfinancial and other fixed assets.information provided to us or publicly available, and have not attempted to verify the same. We have reviewedmade no independent verification as to the assets or properties of HFC or First, and tabulated statistical data regardinghave instead relied upon representations and information of HFC and First, in the loan portfolio, securities portfolio and other performance ratios and statistics. Financial projections were prepared and analyzed as well as other financial studies, analyses and investigations as deemed relevant for the purposes of this opinion.aggregate. In review of the aforementioned information, we have taken into account our assessment of general market and financial conditions, our experience in other transactions, and our knowledge of the banking industry generally. B-1 144 Board of Directors F & M Bancorp Page 2 In conjunction withrendering our opinion, we have evaluatedassumed that the historical performance and current financial conditiontransaction will be a tax-free reorganization with no material adverse tax consequences to HFC or First, or to HFC shareholders receiving First stock. In addition, we have assumed in the course of FFB contained in: (i) June 30, 1995 financial information; (ii) audited financial statementsobtaining the necessary regulatory approvals for the years ending December 31, 1991, 1992, 1993 and 1994; (iii) historical common stock trading and dividend activity to date; (iv)transaction, no condition will be imposed that will have a material adverse effect on the Agreement; and (v) the financial terms of certain other comparable transactions. We have prepared and analyzed the pro forma consolidated financial conditioncontemplated benefits of the Company,transaction to HFC and its shareholders. Based upon our analysis and subject to the Bank and FFB. We have reviewed and tabulated consolidated statistical data regarding growth, growth prospects for service markets, liquidity, asset composition and quality, profitability, leverage and capital adequacy. We have not compiled, reviewed or audited the financial statements of the Company, the Bank or FFB, nor havequalifications described herein, we independently verified any of the information reviewed; we have relied upon such information as being complete and accurate in all material respects. We have not made independent evaluation of the assets of the Company, the Bank or FFB. Based on the foregoing and all other factors deemed relevant, it is our opinion as investment bankers,believe that, as of the date hereof,of this letter, the consideration proposed to be received by the shareholdersterms of the Company under the Agreement isare fair, and equitable from a financial perspective. Very truly yours, PROFESSIONAL BANK SERVICES, INC. Christopher L. Hargrove Vice President B-2point of view, to HFC and its shareholders. For our services in rendering this opinion, HFC will pay us a fee and indemnify us against certain liabilities, including liabilities under the securities laws. We consent to the use of this opinion in the Prospectus and Proxy Statement which is a part of First's Registration Statement on Form S-4 and to the references to us under the heading "Experts" and elsewhere in the Prospectus and Proxy Statement. Austin Associates, Inc. 145157 APPENDIX C CHAPTER 44MICHIGAN BUSINESS CORPORATION ACT DISSENTERS' RIGHTS
Section. Section. 23-1-44-1. "Corporation" defined. 23-1-44-14. Transfer of shares restricted after demand 23-1-44-2. "Dissenter" defined. for payment. 23-1-44-3. "Fair value" defined. 23-1-44-15. Payment to dissenter. 23-1-44-4. "Interest" defined. 23-1-44-16. Return of shares and release of restrictions. 23-1-44-5. "Record shareholder" defined. 23-1-44-17. Offer of fair value for shares obtained after 23-1-44-6. "Beneficial shareholder" defined. first announcement. 23-1-44-7. "Shareholder" defined. 23-1-44-18. Dissenter demand for fair value under certain 23-1-44-8. Shareholder dissent. conditions. 23-1-44-9. Beneficial shareholder dissent. 23-1-44-19. Effect of failure to pay demand - 23-1-44-10. Notice of dissenters' rights Commencement of judicial appraisal preceding shareholder vote. proceeding. 23-1-44-11. Notice of intent to dissent. 23-1-44-20. Judicial determination and assessment of 23-1-44-12. Notice of dissenter's rights costs. following action creating rights. 23-1-44-13. Demand for payment by dissenter.
23-1-44-1. "CORPORATION" DEFINED. -450.1761 DEFINITIONS. As used in this chapter, "corporation"sections 762 to 774: (a) "Beneficial shareholder" means the person who is a beneficial owner of shares held by a nominee as the record shareholder. (b) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange2 of that issuer. [P.L.149-1986, Section 28.] 23-1-44-2. "DISSENTER" DEFINED. - As used in this chapter, "dissenter"(c) "Dissenter" means a shareholder who is entitled to dissent from corporate action under section 8 [IC 23-1-44-8] of this chapter762 and who exercises that right when and in the manner required by sections 10764 through 18 [IC 23-1-44-10 through IC 23-1-44-18] of this chapter. [P.L.149-1986, Section 28.] 23-1-44-3. "FAIR VALUE" DEFINED.- As used in this chapter, "fair value,"772. (d) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. [P.L. 149-1986, Section 28.] 23-1-44-4. "INTEREST" DEFINED. - As used in this chapter, "interest"(e) "Interest" means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances. [P.L. 149-1986, Section 28.] 23-1-44-5. "RECORD SHAREHOLDER" DEFINED. - As used in this chapter, "record(f) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent that treatment as a record shareholder is provided under a recognition procedure or a disclosure procedure established under IC 23-1-30-4. [P.L.149-1986, Section 28.] 23-1-44-6. "BENEFICIAL SHAREHOLDER" DEFINED. - As used in this chapter, "beneficial shareholder" meansof the person who is a beneficial owner of shares heldrights granted by a nominee as the record shareholder. [P.L. 149-1986, Section 28.] 23-1-44-7. "SHAREHOLDER" DEFINED. - As used in this chapter, "shareholder"certificate on file with a corporation. (g) "Shareholder" means the record shareholder or the beneficial shareholder. [P.L.149-1986, Section 28.] 23-1-44-8.45O.1762 RIGHT OF SHAREHOLDER DISSENT. - (a)TO DISSENT AND OBTAIN PAYMENT FOR SHARES. (1) A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder'shis or her shares in the event of, any of the following corporate actions: (1)C-1 158 (a) Consummation of a plan of merger to which the corporation is a party if: (A) Shareholderif shareholder approval is required for the merger by IC 23-1-40-3section 703a or the articles of incorporation;incorporation and (B) Thethe shareholder is entitled to vote on the merger. (2)merger, or the corporation is a subsidiary that is merged with its parent under section 711. (b) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan. C-1 146 (3)(c) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution but not including a sale pursuant to court order ororder. (d) An amendment of the articles giving rise to a sale for cashright to dissent pursuant to section 621. (e) A transaction giving rise to a plan by which all or substantially all of the net proceeds of the sale will be distributedright to the shareholders within one (1) year after the date of sale. (4) The approval of a control share acquisition under IC 23-1-42. (5)dissent pursuant to section 754. (f) Any corporate action taken pursuant to a shareholder vote to the extent the articles, of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) This(g) The approval of a control share acquisition giving rise to a right to dissent pursuant to section does799. (2) Unless otherwise provided in the articles, bylaws, or a resolution of the board, a shareholder may not applydissent from any of the following: (a) Any corporate action set forth in subsection (1)(a) to the holders(e) as to shares which are listed on a national securities exchange or held of shares of any class or series if,record by not less than 2,000 persons on the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting of shareholders at which the merger, plan of share exchange, or sale or exchange of propertycorporate action is to be acted on,upon. (b) A transaction described in subsection (l)(a) in which shareholders receive cash or shares that satisfy the sharesrequirements of that classsubdivision (a) or series were: (1) Registered on a United States securities exchange registered under the Exchange Act (as defined in IC 23-1-43-9); or (2) Traded on the National Association of Securities Dealers, Inc. Automated Quotations System Over-the-Counter Markets - National Market Issues or a similar market.any combination thereof. (c) A shareholder: (1) Whotransaction described in subsection (I)(b) in which shareholders receive cash or shares that satisfy the requirements of subdivision (a) or any combination thereof. C-2 159 (d) A transaction described in subsection (I)(c) which is conducted pursuant to a plan of dissolution providing for distribution of substantially all of the corporation's net assets to shareholders in accordance with their respective interests within 1 year after the date of the transaction, where the transaction is for cash or shares that satisfy the requirements of subdivision (a) or any combination thereof. (3) A shareholder entitled to dissent and obtain payment for the shareholder'shis or her shares under this chapter; or (2) Who would be so entitledpursuant to dissent and obtain payment but for the provisions of subsection (b);(l)(a) to (e) may not challenge the corporate action creating (or that, buthis or her entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (4) A shareholder who exercises his or her right to dissent and seek payment for his or her shares pursuant to subsection (l)(f) may not challenge the provisions of subsection (b), would have created)corporate action creating his or her entitlement unless the shareholder's entitlement. [P.L.149-1986, Section 28; P.L.107-1987, Section 19.] 23-1-44-9.action is unlawful or fraudulent with respect to the shareholder or the corporation. 450.1763 RIGHTS OF PARTIAL DISSENTER; ASSERTION OF DISSENTERS' RIGHTS BY BENEFICIAL SHAREHOLDER DISSENT. - (a)SHAREHOLDER. (1) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in the shareholder'shis or her name only if the shareholderhe or she dissents with respect to all shares beneficially owned by any one (1)1 person and notifies the corporation in writing of the name and address of each person on whose behalf the shareholderhe or she asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which the shareholderhe or she dissents and the shareholder'shis or her other shares were registered in the names of different shareholders. (b)(2) A beneficial shareholder may assert dissenters' rights as to shares held on the shareholder'shis or her behalf only if: (1) The beneficial shareholderif all of the following apply: (a) He or she submits to the corporation the record shareholder'sshareholder s written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) The beneficial shareholderrights. (b) He or she does so with respect to all the beneficial shareholder's shares of which he or those shares over whichshe is the beneficial shareholder or over which he or she has power to direct the vote. [P.L.149-1986, Section 28.] 23-1-44-10. NOTICEC-3 160 450.1764 CORPORATE ACTION CREATING DISSENTERS RIGHTS; VOTE OF DISSENTERS' RIGHTS PRECEDING SHAREHOLDER VOTE. - (a)SHAREHOLDERS; NOTICE. (1) If proposed corporate action creating dissenters' rights under section 8 [IC 23-1-44-8] of this chapter762 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this chapter. (b)act and shall be accompanied by a copy of sections 761 to 774. (2) If corporate action creating dissenters' rights under section 8 of this chapter762 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in section 12 [IC 23-1-44-12] of this chapter. [P.L.149-1986, Section 28; P.L.107-1987, Section 20.] 23-1-44-11.766. A shareholder who consents to the corporate action is not entitled to assert dissenters/rights. 450.1765 NOTICE OF INTENT TO DISSENT. - (a)DEMAND PAYMENT FOR SHARES. (1) If proposed corporate action creating dissenters' rights under section 8 [IC 23-1-44-8] of this chapter762 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Mustrights must deliver to the corporation before the vote is taken written notice of the shareholder'shis or her intent to demand payment for the shareholder'shis or her shares if the proposed action is effectuated;effectuated and C-2 147 (2) Mustmust not vote the shareholder'shis or her shares in favor of the proposed action. (b)(2) A shareholder who does not satisfy the requirements of subsection (a)(1) is not entitled to payment for the shareholder'shis or her shares under this chapter. [P.L.149-1986, Section 28.] 23-1-44-12. NOTICE OF DISSENTERS' RIGHTS FOLLOWING ACTION CREATING RIGHTS. - (a)act. 450.1766 DISSENTER'S NOTICE; DELIVERY TO SHAREHOLDERS; CONTENTS. (1) If proposed corporate action creating dissenters' rights under section 8 [IC 23-1-44-8] of this chapter762 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of section 11 [IC 23-1-44-11] of this chapter. (b)765. (2) The dissenters' notice must be sent no later than ten (10) days after approval by the shareholders, or if corporate action is taken without approval by the shareholders, then ten (10)10 days after the corporate action was taken. The dissenters' notice must: (1)taken, and must provide all of the following: (a) State where the payment demand must be sent and where and when certificates for certificated shares represented by certificates must be deposited; (2)deposited. (b) Inform holders of uncertificated shares without certificates to what extent transfer of the shares will be restricted after the payment demand is received; (3)received. C-4 161 (c) Supply a form for demandingthe payment demand that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether he or not the personshe acquired beneficial ownership of the shares before that date; (4)the date. (d) Set a date by which the corporation must receive the payment demand, which date may not be fewer than thirty (30)30 nor more than sixty (60)60 days after the date the subsection (a)(1) notice is delivered; and (5) Be accompanied by a copy of this chapter. [P.L.149-1986, Section 28.] 23-1-44-13.delivered. 450.1767 DUTIES OF SHAREHOLDER SENT DISSENTER'S NOTICE; RETENTION OF RIGHTS; FAILURE TO DEMAND FOR PAYMENT BY DISSENTER. - (a)OR DEPOSIT SHARE CERTIFICATES. (1) A shareholder sent a dissenters'dissenter's notice described in IC 23-1-42-11 or in section 12 [IC 23-1-44-12] of this chapter766 must demand payment, certify whether the shareholderhe or she acquired beneficial ownership of the shares before the date required to be set forth in the dissenter'sdissenters' notice underpursuant to section 12(b)(3) [IC 23-1-44-12(b)(3)] of this chapter,766(2)(c), and deposit the shareholder'shis or her certificates in accordance with the terms of the notice. (b)(2) The shareholder who demands payment and deposits the shareholder's shareshis or her share certificates under subsection (a)(1) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c)(3) A shareholder who does not demand payment or deposit the shareholder'shis or her share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for the shareholder'shis or her shares under this chapter and is considered, for purposes of this article, to have voted the shareholder's shares in favor of the proposed corporate action. [P.L.149-1986, Section 28.] 23-1-44-14.act. 450.1768 RESTRICTION ON TRANSFER OF SHARES RESTRICTED AFTER DEMAND FOR PAYMENT. - (a)WITHOUT CERTIFICATES; RETENTION OF RIGHTS (1) The corporation may restrict the transfer of uncertificated shares without certificates from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under section 16 [IC 23-1-44-16] of this chapter. (b)770. (2) The person for whom dissenters' rights are asserted as to uncertificated shares without certificates retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. [P.L.149- 1986, Section 28.] 23-1-44-15.C-5 162 450.1769 PAYMENT BY CORPORATION TO DISSENTER. - (a)DISSENTER; ACCOMPANYING DOCUMENTS. (1) Except as provided in section 17 [IC 23-1-44-17] of this chapter, as soon as771, within 7 days after the proposed corporate action is taken or if the transaction did not need shareholder approval and has been completed, upon receipt of a payment demand is received, whichever occurs later, the corporation shall pay each dissenter who complied with section 13 [IC 23-1-44-13] of this chapter767 the amount the corporation estimates to be the fair value of the dissenter's shares. (b)his or her shares, plus accounted interest. (2) The payment must be accompanied by: (1)by all of the following: (a) The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen (16)16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and if available the latest available interim financial statements, if any; C-3 148 (2)statements. (b) A statement of the corporation's estimate of the fair value of the shares; and (3)shares. (c) An explanation of how the interest was calculated. (d) A statement of the dissenter's right to demand payment under section 18 [IC 23-1-44-18] of this chapter. [P.L.149-1986, Section 28; P.L. 107-1987, Section 21.] 23-1-44-16.772. 450.1770 RETURN OF SHARESDEPOSITED CERTIFICATES AND RELEASE OF RESTRICTIONS. - (a)TRANSFER RESTRICTIONS; EFFECT OF CORPORATION TAKING PROPOSED ACTION. (1) If the corporation does not take the proposed action within sixty (60)60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b)shares without certificates (2) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters'dissenters notice under section 12 [IC 23-1-44-12] of this chapter766 and repeat the payment demand procedure. [P.L.149-1986, Section 28.] 23-1-44-17.450.1771 ELECTION TO WITHHOLD PAYMENT FROM DISSENTER; OFFER OFTO PAY ESTIMATED FAIR VALUE FOROF SHARES, OBTAINED AFTER FIRST ANNOUNCEMENT. - (a)PLUS ACCRUED INTEREST; STATEMENTS; EXPLANATION. (1) A corporation may elect to withhold payment required by section 15 [IC 23-1-44-15] of this chapter769 from a dissenter unless the dissenterhe or she was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcementpursuant to news media or to shareholders of the terms of the proposed corporate action. (b)section 766(2)(c). C-6 163 (2) To the extent the corporation elects to withhold payment under subsection (a)(1), after taking the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall offer to pay this amount to each dissenter who agreesshall agree to accept it in full satisfaction of the dissenter'shis or her demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter'sdissenters right to demand payment under section 18 [IC 23-1-44-18] of this chapter. [P.L.149-1986, Section 28.] 23-1-44-18. DISSENTER772. 450.1772 DEMAND FOR PAYMENT OF DISSENTER'S ESTIMATE OR REJECTION OF CORPORATION'S OFFER AND DEMAND FOR PAYMENT OF FAIR VALUE UNDER CERTAIN CONDITIONS. - (a)AND INTEREST DUE; WAIVER. (1) A dissenter may notify the corporation in writing of the dissenter'shis or her own estimate of the fair value of the dissenter'shis or her shares and amount of interest due, and demand payment of the dissenter'shis or her estimate, (lessless any payment under section 15 [IC 23-1-44-15] of this chapter),769, or reject the corporation's offer under section 17 [IC 23-1-44-17] of this chapter771 and demand payment of the fair value of his or her shares and interest due, if any 1 of the dissenter's shares, if: (1)following applies: (a) The dissenter believes that the amount paid under section 15 of this chapter769 or offered under section 17 of this chapter771 is less than the fair value of his or her shares or that the dissenter's shares; (2)interest due is incorrectly calculated. (b) The corporation fails to make payment under section 15 of this chapter769 within sixty (60)60 days after the date set for demanding payment; or (3)payment. (c) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares without certificates within sixty (60)60 days after the date set for demanding payment. (b)(2) A dissenter waives thehis or her right to demand payment under this section unless the dissenterhe or she notifies the corporation of the dissenter'shis or her demand in writing under subsection (a)(1) within thirty (30)30 days after the corporation made or offered payment for the dissenter'shis or her shares. [P.L.149-1986, Section 28.] 23-1-44-19. EFFECTC-7 164 450.1773 PETITIONING COURT TO DETERMINE FAIR VALUE OF SHARES AND ACCRUED INTEREST; FAILURE OF CORPORATION TO PAY DEMAND - COMMENCEMENT OF JUDICIAL APPRAISAL PROCEEDING. - (a)COMMENCE PROCEEDING; VENUE; PARTIES; SERVICE; JURISDICTION; APPRAISERS; DISCOVERY RIGHTS; JUDGMENT. (1) If a demand for payment under IC 23-1-42-11 or under section 18 [IC 23-1-44-18] of this chapter772 remains unsettled, the corporation shall commence a proceeding within sixty (60)60 days after receiving the payment demand and petition the court to determine the fair value of the shares.shares and accrued interest. If the corporation does not commence the proceedingsproceeding within the sixty (60) day60-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b)(2) The corporation shall commence the proceeding in the circuit or superior court of the county where ain which the corporation's principal office (or, if none in Indiana, itsplace of business or registered office)office is located. If the corporation is a foreign corporation without a registered office or principal place of business in Indiana,this state, it shall commence the proceeding in the county in Indianathis state where the principal place of business or registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporationare to be valued was located. (c)(3) The corporation shall make all dissenters, (whetherwhether or not residents of this state)state, whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties mustshall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. C-4 149 (d)(4) The jurisdiction of the court in which the proceeding is commenced under subsection (b)(2) is plenary and exclusive. The court may appoint one (1)1 or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. (e)(5) Each dissenter made a party to the proceeding is entitled to judgment. (1) Forjudgment for the amount, if any, by which the court finds the fair value of the dissenter'shis or her shares, plus interest, exceeds the amount paid by the corporation;corporation or (2) Forfor the fair value, plus accrued interest, of the dissenter'shis or her after-acquired shares for which the corporation elected to withhold payment under section 17 [IC 23-1-44-17]771. C-8 165 450.1773a REFEREE; APPOINTMENT; POWERS; COMPENSATION; DUTIES; OBJECTIONS TO REPORT; APPLICATION TO COURT FOR ACTION; ADOPTION, MODIFICATION, OR RECOMMITMENT OF REPORT; FURTHER EVIDENCE; JUDGMENT; REVIEW. (1) In a proceeding brought pursuant to section 773, the court may, pursuant to the agreement of this chapter. [P.L.149-1986, Section 28.] 23-1-44-20. JUDICIAL DETERMINATION AND ASSESSMENTthe parties, appoint a referee selected by the parties and subject to the approval of the court. The referee may conduct proceedings within the state, or outside the state by stipulation of the parties with the referee's consent, and pursuant to the Michigan court rules. The referee shall have powers that include, but are not limited to, the following: (a) To hear all pretrial motions and submit proposed orders to the court. In ruling on the pretrial motion and proposed orders, the court shall consider only those documents, pleadings, and arguments that were presented to the referee. (b) To require the production of evidence, including the production of all books, papers, documents, and writings applicable to the proceeding, and to permit entry upon designated land or other property in the possession or control of the corporation. (c) To rule upon the admissibility of evidence pursuant to the Michigan rules of evidence. (d) To place witnesses under oath and to examine witnesses. (e) To provide for the taking of testimony by deposition. (f) To regulate the course of the proceeding. (g) To issue subpoenas, when a written request is made by any of the parties, requiring the attendance and testimony of any witness and the production of evidence including books, records, correspondence, and documents in the possession of the witness or under his or her control, at a hearing before the referee or at a deposition convened pursuant to subdivision (e). In case of a refusal to comply with a subpoena, the party on whose behalf the subpoena was issued may file a petition in the court for an order requiring compliance. (2) The amount and manner of payment of the referee's compensation shall be determined by agreement between the referee and the parties, subject to the court's allocation of compensation between the parties at the end of the proceeding pursuant to equitable principles, notwithstanding section 774. C-9 166 (3) The referee shall do all of the following: (a) Make a record and reporter's transcript of the proceeding. (b) Prepare a report, including proposed findings of fact and conclusions of law, and a recommended judgment. (c) File the report with the court, together with all original exhibits and the reporter's transcript of the proceeding. (4) Unless the court provides for a longer period, not more than 45 days after being served with notice of the filing of the report described in subsection (3), any party may serve written objections to the report upon the other party. Application to the court for action upon the report and objections to the report shall be made by motion upon notice. The court, after hearing, may adopt the report, may receive further evidence, may modify the report, or may recommit the report to the referee with instructions. Upon adoption of the report, judgment shall be entered in the same manner as if the action had been tried by the court and shall be subject to review in the same manner as any other judgment of the court. 450.1774 COSTS OF COSTS. - (a)APPRAISAL PROCEEDING. (1) The court in an appraisal proceeding commenced under section 19 [IC 23-1-44-19] of this chapter773 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against such parties andthe corporation, except that the court may assess costs against all or some of the dissenters, in such amounts as the court finds equitable. (b)equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under section 772. (2) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1)equitable in the following manner: (a) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of sections 10764 through 18 [IC 23-1-44-10 through IC 23-1-44-18] of this chapter; or (2)772. (b) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter. (c)act. C-10 167 (3) If the court finds that the services of counsel for any dissenter were ofor substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to thesethose counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefitted. [P.L.149-1986, Section 28.] C-5C-11 150168 INFORMATION NOT REQUIRED IN THE PROXY-STATEMENT PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS - -------- ----------------------------------------- The Ohio General Corporation Law allows a corporation under certain circumstances to indemnify its directors, officers, and employees. Generally, whether by its articles of incorporation or its code of regulations or by statute, the indemnification permits the Corporation to pay expenses actually and necessarily incurred in the defense of any pending or threatened suit. The determination of the right of indemnification is determined by a quorum of disinterested directors not involved in such a pending matter and if they are unable to make such determination, then such determination shall be made by independent legal counsel, Bancorp'sFirst Financial's shareholders or by the Butler County, Ohio, Court of Common Pleas. BancorpFirst Financial has such an indemnification provision in its Code of Regulations, and that provision is set forth below. The Code of Regulations of BancorpFirst Financial and the statute do not allow indemnification of an officer or director wherein such person has been adjudicated negligent or guilty of misconduct and, additionally, such officer or director must have acted in good faith or had no reason to believe such officer's or director's conduct was unlawful to be indemnified. Article III-A of the Code of Regulations of BancorpFirst Financial provides: SECTION 3-A.1. MANDATORY INDEMNIFICATION. The Corporation shall indemnify any officer or director, or any other employee of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, any action threatened or instituted by or in the right of the Corporation), by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise, against expenses (including, without limitation, attorneys' fees, filing fees, court reporters' fees and transcript costs), judgment, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was unlawful. A person claiming indemnification under this Section 3-A.1 shall be presumed to have met the applicable standard of conduct set forth herein, and the termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contenderscontendere or its equivalent, shall not, of itself, rebut such presumption. II-1 151169 SECTION 3-A.2. COURT-APPROVED INDEMNIFICATION. Anything contained in the Regulations or elsewhere to the contrary notwithstanding: (A) the Corporation shall not indemnify any officer or director or employee of the Corporation who was a party to any completed action or suit instituted by or in the right of the Corporation to procure a judgment in its favor by reason of the fact he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise, in respect of any claim, issue or matter asserted in such action or suit as to which he shall have been adjudged to be liable for misconduct (other than negligence of any degree) in the performance of his duty to the Corporation unless and only to the extent that the Court of Common Pleas of Butler County, Ohio or the court in which such action or suit was brought shall determine upon application that, despite such adjudication of liability, and in view of all the circumstances of the case, he is fairly and reasonably entitled to such indemnity as such Court of Common Pleas or such other court shall deem proper; and (B) the Corporation shall promptly make any such unpaid indemnification as is determined by a court to be proper as contemplated by this Section 3-A.2. SECTION 3-A.3. INDEMNIFICATION FOR EXPENSES. Anything contained in the Regulations or elsewhere to the contrary notwithstanding, to the extent that an officer, director or employee of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 3-A.1, or in defense of any claim, issue or matter therein, he shall be promptly indemnified by the Corporation against expenses (including, without limitation, attorneys' fees, filing fees, court reporters' fees and transcript costs) actually and reasonably incurred by him in connection therewith. SECTION 3-A.4. DETERMINATION REQUIRED. Any indemnification required under Section 3-A.1 and not precluded under Section 3-A.2 shall be made by the Corporation only upon a determination that such indemnification of the officer or director or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 3-A.1. Such determination may be made only (A) by a majority vote of a quorum consisting of directors of the Corporation who were not and are not parties to, or threatened with, any such action, suit or proceeding, or (B) if such a quorum is not obtainable or if a majority of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has II-2 170 been retained by or who has performed services II-2 152 for the Corporation, or any person to be indemnified, within the past five years, or (C) by the shareholders, or (D) by the Court of Common Pleas of Butler County, Ohio or (if the Corporation is a party thereto) the court in which such action, suit or proceeding was brought, if any. Any determination made by the disinterested directors under subparagraph (A) of this Section or by independent legal counsel under subparagraph (B) of this Section to make indemnification in respect of any claim, issue or matter asserted in an action or suit threatened or brought by or in the right of the Corporation shall be promptly communicated to the person who threatened or brought such action or suit, and within ten (10) days after receipt of such notification such person shall have the right to petition the Court of Common Pleas of Butler County, Ohio or the Court in which such action or suit was brought, if any, to review the reasonableness of such determination. SECTION 3-A.5. ADVANCES FOR EXPENSES. Unless the only liability asserted against a director in an action, suit or proceeding referred to in Section 3-A.1 of this article arises pursuant to Section 1701.95 of the Ohio Revised Code, expenses, including attorney's fees, incurred by a director in defending the action, suit or proceeding shall be paid by the Corporation as they are incurred, in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director in which he agrees: (i) to repay amounts so advanced if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act was undertaken with deliberate intent to cause injury to the Corporation or with reckless disregard for the best interests of the Corporation; and (ii) to reasonably cooperate with the Corporation with respect to the action, suit or proceeding. Expenses, including attorneys' fees, incurred by a director, trustee, officer, employee or agent in defending any action, suit or proceeding referred to in Section 3-A.3 of this Article, may be paid by the Corporation as they are incurred, in advance of the final disposition of the action, suit or proceeding as authorized by the directors in the specific case, upon receipt of any undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount if it is ultimately determined that he is not entitled to be indemnified by the Corporation. II-3 171 SECTION 3-A.6. ARTICLE III-A NOT EXCLUSIVE. The indemnification provided by this Article III-A shall not be deemed exclusive of any other rights to which any person seeking indemnification may be entitled under the Articles or the Regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be an officer or director or employee of the Corporation and shall inure to the benefit of the heirs, executors, and administrators of such a person. II-3 153 SECTION 3-A.7. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the obligation or the power to indemnify him against such liability under the provisions of this Article III-A. SECTION 3-A.8. VENUE. Any action by a person claiming indemnification under this Article III-A, or by the Corporation, to determine such claim for indemnification may be filed as to the Corporation and each such person in Butler County, State of Ohio. The Corporation and (by claiming such indemnification) each such person consent to the exercise of jurisdiction over its or his person by the Court of Common Pleas of Butler County, Ohio. Item 21. Exhibits and Financial Statement Schedules - ---------------------------------------------------- (a) See Index to Exhibits. (b) See "F&M BANCORP"HASTINGS FINANCIAL STATEMENTS"CORPORATION FINANCIAL STATEMENTS." (c) Fairness Opinion furnished as Appendix B to Proxy Statement-Prospectus.Statement- Prospectus. Item 22. Undertakings - ---------------------- The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; II-4 172 (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. II-4 154 (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) To deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (5) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. II-5 173 (6) That every prospectus (i) that is filed pursuant to the paragraph immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act") and is used in connection with an offering of securities subject to Rule 415 will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (7) That, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such II-5 155 director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (8) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (9) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-6 156174 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Hamilton, State of Ohio, on December 22, 1995.September , 1996. FIRST FINANCIAL BANCORP. By: /s/ Stanley N. Pontius ------------------------------------------------------------------------ Stanley N. Pontius President and Chief Executive Officer Date: December 22, 1995September 30, 1996 - ------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated: /s/ Stanley N. Pontius /s/ Richard E. Weinman - --------------------------------------- --------------------------------------------------------------------------- ------------------------- Stanley N. Pontius, Director, President Richard E. Weinman, Exec.Michael R. O'Dell, Senior Vice and Chief Executive Officer President, Chief Financial Officer and Secretary and Treasurer Date: December 22, 1995September 30, 1996 Date: December 22, 1995 ----------------------------------- --------------------------------- /s/ Murph Knapke /s/ Vaden FittonSeptember 30, 1996 ---------------------------------- --------------------- - --------------------------------------- ------------------------------------- Murph Knapke,-------------------------------------- ------------------------- Lauren N. Patch, Director Vaden Fitton,Joel H. Schmidt, Director Date: December 22, 1995September 30, 1996 Date: December 22, 1995 ----------------------------------- --------------------------------- /s/ Carl R. Fiora /s/ Thomas C. BlakeSeptember 30, 1996 ---------------------------------- --------------------- - --------------------------------------- ------------------------------------- Carl R. Fiora,-------------------------------------- ------------------------- Donald M. Cisle, Director Thomas C. Blake, Director Date: December 22, 1995September 30, 1996 Date: December 22, 1995 ----------------------------------- --------------------------------- /s/ Joel H. Schmidt /s/ BarrySeptember 30, 1996 ---------------------------------- --------------------- - -------------------------------------- ------------------------- Vaden Fitton, Director Stephen S. PorterMarcum, Director Date: September 30, 1996 Date: September 30, 1996 ---------------------------------- --------------------- - --------------------------------------- ------------------------------------ Joel H. Schmidt,-------------------------------------- ------------------------- Elden Houts, Director Barry S. Porter, Director Date: December 22, 1995September 30, 1996 Date: December 22, 1995 ----------------------------------- --------------------------------- /s/ Arthur W. Bidwell /s/September 30, 1996 ---------------------------------- --------------------- - -------------------------------------- Joseph L. Marcum - --------------------------------------- ------------------------------------- Arthur W. Bidwell, Director Joseph L. Marcum, DirectorM. Gallina, Comptroller Date: December 22, 1995 Date: December 22, 1995 ----------------------------------- ---------------------------------September 30, 1996 --------------------- II-7 157175 INDEX TO EXHIBITS Exhibit Number Description - ------- ----------- 2.1 Plan and Agreement of Merger between First Financial Bancorp. and F&M BancorpHastings Financial Corporation (Included as Appendix A in the Proxy Statement-Prospectus) 5. Opinion of Counsel 8. Form of Tax Opinion of Ice Miller DonadioWerner & RyanBlank Co., L.P.A. to be Issued on Consummation of Merger 23.1 Consent of Ernst & Young LLP, Independent Auditors for First Financial Bancorp. 23.2 Consent of Crowe, Chizek and Company LLP, Independent Auditors for F&M Bancorp.Hastings Financial Corporation. 23.3 Consent of Beene, Garter & Co., Independent Auditors for Hastings Financial Corporation's Consolidated Statement of Income and Consolidated Statement of Cash Flows for the Year Ended December 31, 1993. 23.4 Consent of Frost & Jacobs, Counsel for Registrant (Incorporated in Exhibit 5) 23.423.5 Consent of Ice Miller DonadioWerner & RyanBlank Co., L.P.A. (Incorporated in Exhibit 8) 23.523.6 Consent of Professional Bank ServicesAustin Associates, Inc. (Incorporated in Exhibit 99.1) 99.1 Fairness Opinion of Professional Bank ServicesAustin Associates, Inc. (Included as Appendix B in the Proxy Statement-Prospectus.) 99.2 Exchange Agent Agreement 99.3 F&M'sHastings Financial's Form of Proxy II-8